Water and food security are highly intertwined issues and they ultimately depend on the sustainable use of natural resources. Looking ahead, sustainability is a big challenge as the population continues to grow; as does the demand for better living standards. Added to the equation, climate change is enhancing business and societal risks through its impacts on natural resources and the costs of emissions mitigation targets. Both effects call for integrated adaptation and mitigation solutions — such as better water management and lower energy use — along the supply chains of products. In our brewing business, we depend on natural resources and, as we use them to produce our beer, we inevitably impact on them. Because we operate across continents, our climate-related and resource-related risks are huge. Therefore, we need to better understand where and why risks increase and what to do to address them. There is no single or simple silver bullet solution. Rather, it is paramount that we start embracing complexity by recognizing the food–water–energy nexus so that we can better manage resources to meet equitable economic and social development. This line of thinking offers solutions that are rooted in the multiple challenges emerging at the local level.
Water as a business priority
In the context of water security, business has a responsibility to engage with other stakeholders to explore solutions, if not opportunities, for improved water management. For us at SABMiller, water is vital not only for the brewing process but also for growing the crops used to make beer and for generating electricity to power our breweries. We must therefore simultaneously tackle direct water usage in our operations as well as the water needs of agricultural and energy systems. In addition, a more sustainable agricultural system is one that also adapts to the impacts of climate change, including water scarcity. Adaptation means improved cultivation practices and resource efficiency — which can be achieved through water management. Water plays a fundamental role at various stages in our supply chain and therefore water scarcity poses significant risks to our business, as well as to some of the communities in which we operate. We aim to work collaboratively with local communities to protect the watersheds that we share, as we all depend on them. According to the United Nations, more than three billion people will be living in water-scarce areas by 2025. This figure includes a significant proportion of our customers, employees and communities. For this reason, we have developed a holistic, whole value chain approach to ensure these stakeholders are included in our business strategy.
On its own, increased efficiency in the use of natural resources within our operations will not be enough to ensure that they are available over time. We need to go beyond efficiency measures if we want to meet our target of using just 3.5 litres of water to make 1 litre of beer by 2015, which will represent a 25% improvement with respect to 2008 water usage levels. The average efficiency of breweries varies by country and by brewery; our Water Futures report gives examples from across the globe3. We are relying on our understanding of risk, our global scale and our existing relationships with stakeholders (particularly governments and NGOs) to mobilize partnerships. This is the only way to improve our understanding of the shared water challenges we face, helping us to make better management decisions and facilitating knowledge sharing.
Addressing the challenge
Water availability and climate change are incredibly complex issues, with impacts on our natural assets at both the local and the global level. Those impacts affect our business operations as well as the well-being of communities in affected areas. One way to address this complexity is to define and include natural capital as an additional constraint in the decision making process of businesses. Natural capital is an economic metaphor for our planet's limited stocks of physical and biological resources, and the limited capacity of ecosystems to make direct and indirect contributions to human well-being.
Business leaders recognize that our societies are increasingly living beyond the boundaries of our natural capital stock — for example, by overexploiting water resources. Companies urgently need a deeper understanding of the unpriced impacts associated with the production of goods and services (externalities) on people and the environment, such as the over-abstraction of water. By understanding externalities and considering them in the assessments of business risk and opportunities as part of their decision-making process, companies can take bold steps towards thoughtful business development that looks at impacts beyond the purely commercial dimension. The valuation of externalities in monetary terms aims at making them visible and part of the decision-making process of companies. It reveals the hidden costs associated with environmental impacts and can help businesses make better-informed decisions on the use of natural resources.
Farming malting barley in Rajasthan
Working closely with the Natural Capital Leaders Platform (an initiative at the University of Cambridge that convenes companies wishing to better understand and manage their impacts and dependencies on natural capital; www.cpsl.cam.ac.uk/natcap) and academics co-funded by the Valuing Nature Network (an interdisciplinary network for valuing biodiversity, ecosystem services and the use of natural resources), SABMiller used a bottom-up approach to value environmental externalities associated with its procurement of malting barley in Rajasthan, India1. The analysis began as an exploratory desk-study using company experts as well as publically available data about the biophysical and socio-economic aspects of farming in Rajasthan. Prior to the company's start in Rajasthan, very little malting barley was grown, but the company did not want to import all of its raw material from abroad and preferred to build a local supply chain. Therefore, SABMiller India decided to establish a farm extension service — providing local small-scale farmers with in-field advice on how to grow malting barley and offering them an attractive price. While all of these farmers are independent and barley is only one of their crops, we at SABMiller sought to gain a better understanding of the socio-economic and environmental effects of engaging with the farmers, mainly because of the increasing concerns about water scarcity in the region. Under different scenarios, the study assessed trends in agriculture in Rajasthan over the last 10 years and found that production was characterized by increasing fertilizer and fossil fuel use (the latter used to produce energy), and limited water-use reductions. Comparing the performance of barley farmers with these trends, the study showed that SABMiller's programme helped participating farmers to increase yield by 55%, produce a better quality barley, increase their income by US$1 per day by following the best agronomic advice for malting barley, achieve a fourfold reduction of irrigation water use and reduce their carbon emissions by 16%.
For the 6,000 participating farmers in Rajasthan, the annual reduction of water use and CO2 emissions amounted to 3.4 million m3 and 1,980 tonnes of CO2 equivalent, respectively. The total monetary value of these normally unpriced effects was estimated at US$300,000 per year. This means that without the programme, barley production would have had an additional annual (hidden) cost of US$300,000 — representing the cost of depleting water resources and contributing to climate change. Despite these water and carbon benefits, the study highlighted two areas for potential improvement. First, even larger reductions in water use are needed. The aquifer in the area suffers from unsustainable extractions for agricultural activities. Barley is just part of the picture and wider systemic changes to the entire agricultural system are needed to address the rapid fall in ground-water resources. Second, wider support is required for growers to improve their farming practices. Farmers could achieve an increase in their income by US$2 per day if they systematically received best-practice agronomic advice for all current crops, not just barley.
The lessons we at SABMiller have learned from this valuation study of malting barley is that inter-connections between resources are critical and issues such as water scarcity and food and energy security cannot be addressed in silos. We need to find better ways to address the physical impacts of climate change and handle the relationships and trade-offs between water, food and energy. Furthermore, these challenges are compounded by the societal impacts of the local political economy of water. Therefore, we are now trying to make our own business decisions through the lens of the resources nexus. In doing so, we are working to expand our global network of local partnerships to foster sustainable solutions2.
Wasteful resource use impacts on natural capital and can undermine long-term economic and social stability, exacerbating risks for businesses. We share the risks related to these resources with local communities and other stakeholders, such as governments and NGOs. This means that collective understanding and collective action are crucial. In India, water scarcity is a major issue and we are determined to collaborate with all those affected to understand and tackle the problem to benefit local communities and ecosystems, as well as our business. Effective resource management can also generate opportunities for businesses and other stakeholders to counteract the impacts of climate change.
Assessing and pricing externalities is not an easy task, nor is it an established business practice, but we at SABMiller believe it is a valuable tool for supporting better resource management. Increased use of externality valuation represents an important step in the journey towards factoring natural capital into business decisions.
Andy Wales is at SABMiller, SABMiller House, Church St West, Woking GU21 6HS, UK
*e-mail: Andy.Wales at sabmiller.com
1. Bowe C., van der Horst D. & Meghwanshi C. Assessing the externalities of SABMiller’s barley extension program in Rajasthan (SABMiller, 2013); http://go.nature.com/lfEd1c
2. Water Future: Beyond 2012 (Water Futures Partnership, 2012); http://go.nature.com/lYBKiP
This article is reprinted with permission from Nature Climate Change. It was first published on April 25, 2014.