The World Economic Forum’s annual Global Risks report has ranked the water supply crises as the number 1 global risk to businesses over the next ten years: Globally, individuals and communities are experiencing water scarcity, or water insecurity, which is the inability of users to access, sustainably, good quality water of sufficient quantity necessary for human well-being and socio-economic development.
The pharmaceutical industry is not immune to the risks of water insecurity; as pharmaceutical companies require consistent access to supplies of high quality water necessary for the production of prescription medicines, over-the-counter therapeutic drugs and veterinary drugs.
So how can pharmaceutical companies reduce the risks associated with water insecurity?
First, pharmaceutical companies need to understand the concept of physical and ecological footprints: The physical footprint is the percentage of the Earth’s surface their manufacturing plants are built on (the direct operations) while a pharmaceutical company’s ecological footprint is the geographical area in which their suppliers (of goods or services) are located in – (their indirect operations). Therefore, pharmaceutical companies are exposed to water insecurity through both their direct and indirect operations.
Second, every pharmaceutical company needs to understand the global mega-trends that impact water security of all users including pharmaceutical companies directly and indirectly. These mega-trends include:
Rapid urbanization – Currently 50% of the world’s population is urbanized. By 2050 this will rise to 75% increasing demand for water resources. In addition, water quality is threatened by land-use changes that degrade ecosystems, point source pollution from industrial and domestic waste, and non-point source pollution from organic and inorganic chemicals.
Rapid economic growth – Rapid economic growth in emerging markets will see a significant increase in the percentage of water resources used by industry: In low-to-middle income countries, industry typically accounts for around 10% of total water withdrawals; however, this rises to nearly 60% for high-income countries.
Increased energy demand – World energy consumption will grow by 56% between 2010 and 2040 with most of this growth in non-OECD countries. This trend will result in increased demand for water in the production of electricity.
Increased food demand – Currently, the world’s population is 7.2 billion. This will increase to 8.1 billion in 2025, 9.6 billion in 2050 and 10.9 billion in 2100. Currently, agricultural production accounts for 79% of water withdrawals, but this is expected to increase by 75-100% over the next half-century.
Climate change – Climate change will likely increase the frequency and magnitude of floods and droughts. Specifically, flooding will decrease the availability of good quality water from the contamination of surface and ground water supplies, while droughts decrease the quantity of water available while increasing demand for water for cooling and drinking.
Third, pharmaceutical companies need to understand how their manufacturing processes can impact the water security of other users. Pharmaceuticals can be introduced into ground and surface water through sewage, which carries the excreta of individuals and patients who have used these chemicals, from uncontrolled drug disposal (e.g. discarding drugs into toilets) and from agricultural runoff comprising livestock manure. As such, the World Health Organisation has declared pharmaceuticals to be ‘’chemicals of emerging concern’’ to the public because of their potential to reach drinking-water supplies.
Types of corporate water risks
If pharmaceutical companies do not address water security overall, they will be exposed to numerous risks, which include:
Financial risks – Losses from disruptions to the production cycle as well as increased costs of treating poor quality water.
Litigation risks – Consequences of lawsuits or other legal actions in relation to the company’s impacts on water quantity and quality of other users.
Physical risks – Include both current and predicted change in water quantity and quality that may impact the company’s direct operations, for instance lack of water supply can slow down or stop production.
Regulatory risks – The impacts of current and/or anticipated water-related regulations on a specific company.
Reputational risks – Current or potential conflicts with the public over water issues that can damage the company’s brand image locally, nationally or internationally, or result in the loss of the community’s license to operate within a certain location.
Strategic risks – Are failures to incorporate water availability data into strategic planning.
Technological risks – Lack of adequate technology in ensuring the efficient use of water resources, which can hinder production during times of limited water supply.
Mitigating water risks to the pharmaceutical industry
So how can pharmaceutical companies achieve water security in both their direct and indirect operations and mitigate these risks?
- Companies can establish a water policy and set quantifiable goals and targets on water-use efficiency and conservation to minimize water-related risks to their direct operations,
- Companies can assess water conditions and risks to both their own operations and those of their suppliers,
- Companies can implement best-available technology for reducing water consumption,
- Companies can factor in water-related risks (droughts, floods, sea-level rise) into their business decisions,
- Companies can form strategic partnerships to address water-related problems on a regional scale.
Global mega-trends will only exacerbate water insecurity exposing pharmaceutical companies to numerous water risks, which can be mitigated through a 5-step process.