Jennifer Heymann, Peter Easton, and Bogdana Marinova are water experts at Waterplan who provided additional support writing this article.
Water: An Evolving Landscape
In recent years, events from record droughts to unprecedented floods have disrupted operations and supply chains worldwide. Investors and regulators are also ramping up demands for transparency around water risk management, making it clear that water is no longer an afterthought in corporate strategy.
Corporate Sustainability Managers must now demonstrate that their organizations understand the water risks they face and have robust plans to mitigate them, reassuring stakeholders—leadership, investors, customers, and regulators—that the business will remain resilient and responsible in the long term.
The journey to understand, report, and address water risk often appears daunting, leaving even experienced managers uncertain about where to begin. The good news is that this guide will walk you through the basics of corporate water risk assessment and management. We’ll cover what water risk means for your business, which industries and regions are most vulnerable, how to assess and mitigate these risks, and how to engage stakeholders and leverage new tools to turn water challenges into opportunities.
What Is Water Risk and Why It Matters
Water risk refers to the potential for water-related problems—such as shortages, floods, or pollution—to negatively impact your business, the environment, or nearby communities. For companies, these risks can translate into tangible financial costs: lost production, supply chain disruptions, regulatory fines, or even the closure of operations in severe cases. According to CDP, global companies suffered $38.5 billion in water-related financial losses in 2018, and by 2022 depleted water resources had stranded an additional $13.5 billion in assets across industries like oil & gas, utilities, and mining.
Water may be relatively inexpensive to purchase in many countries, especially compared to energy, but its true value becomes painfully clear when it’s unavailable or unusable. Unfortunately, many businesses realize their vulnerability too late—often when a supposedly “unexpected” event like a drought or flood brings operations to a halt.
Types of Corporate Water Risk:
1. Physical Risk (Scarcity, Quality, and Flooding): Physical water risks relate to both the quantity and quality of available water. Water scarcity can stem from droughts or overuse, water quality can degrade due to pollution, and flooding can damage facilities and infrastructure. These risks are intensifying: by 2030, the United Nations forecasts a 40% shortfall in water availability, whereas the WRI predicts a global water supply deficit of 56%. Right on tone, companies report to CDP that the majority of their water-related risk exposure—around 79%—comes from physical risks like drought and flooding.
2. Regulatory Risk: This risk revolves around current or future water-related regulations that could constrain business activities. Water use and discharge are increasingly subject to laws, permits, and restrictions—especially as governments respond to water scarcity and public concern. Non-compliance can lead to fines, litigation, or even forced shutdown of facilities. However, keeping track of water regulations across multiple regions is challenging for global companies. New regulations are increasing pressure on companies to address water risks. The EU’s CSRD now requires detailed water reporting, and the TNFD framework urges firms to disclose exposure in high-risk watersheds. While companies currently attribute 16% of their water risk to regulation (CDP), that share is likely to rise as governments act on the global water crisis.
3. Reputational Risk: Rooted in public perception, reputational risk relates to how a company is perceived as contributing to water-related problems. Accusations of over-extraction, pollution, or inadequate water management can tarnish a company's image and erode consumer trust, leading to brand damage and loss of revenue. Globally, NGOs and the public are increasingly vigilant about corporate water practices, especially for beverage, mining, and agriculture companies known to be heavy water users. Although reputational issues accounted for only 5% of reported water risk exposure in one CDP survey, the impact of a reputational crisis can be outsized
4. Infrastructure Risk: Infrastructure risk relates to the state and capacity of water infrastructure that a business relies on, either directly or indirectly. This includes public water supply systems, wastewater treatment facilities, dams and reservoirs, and flood control structures. If the local water infrastructure is old, undersized, or poorly maintained, a company faces higher risk of service interruptions or water quality issues beyond its direct control. Evaluating the resilience of local water infrastructure (and having backup plans like onsite storage or secondary sources) is therefore a key part of corporate water risk management.
Understanding these four dimensions of water risk provides a holistic view of where your company could be vulnerable. These categories often intersect; a drought (physical risk) can trigger government water restrictions (regulatory risk) and community outrage (reputational risk) all at once. A comprehensive water risk assessment will evaluate all of these facets at each location where you operate or source materials.
Water Risk by Industry
Water risks vary greatly by industry, and still, in most sectors, the cost of action is lower than the cost of inaction. Here’s a look at several sectors and how water risk impacts them:
Manufacturing (CPG & Electronics) is among the most water-intensive industries, with an estimated $191 billion in value at risk due to water-related challenges (CDP)—the highest across all sectors. Water scarcity or pollution can quickly disrupt production, especially for electronics firms that need ultra-pure water for chip fabrication. These risks are amplified by the global footprint of manufacturing, which exposes facilities to water stress in multiple regions. Coca-Cola Europacific Partners exemplifies proactive water stewardship in the CPG beverage sector. CCEP identified high-risk bottling plants and developed site-specific water reduction strategies, reducing operational vulnerability while improving efficiency across facilities and scaling data-driven water risk management across multinational operations.
Water is central to mining operations—used for dewatering, mineral processing, and dust suppression—yet mines often operate in arid regions or sensitive watersheds, creating significant physical and reputational risks. The mining industry faces $24.9 billion in value at risk, with 91% of companies identifying water security as an immediate concern (CDP). Real-world consequences are mounting: water scarcity can restrict operations, while excess water from heavy rains or poor tailings management can trigger disasters.
The food & beverage sector is deeply dependent on water. Agriculture alone accounts for nearly 70% of global water use (UNESCO), leaving this sector highly exposed to droughts and groundwater depletion. CDP estimates that $20 billion are at stake in water-related risks, and real-world events bear that out: recent multi-year droughts in regions like California’s Central Valley have slashed yields of key crops like almonds and tomatoes, disrupting entire supply chains. Reputational risks are also rising, as consumers scrutinize brands tied to water-intensive operations.
The textile industry often operates in regions facing water stress, yet requires water for processes such as cotton farming to fabric dyeing. Pollution and scarcity in key manufacturing hubs can disrupt production and damage brand reputation. A 2021 Ceres report estimated that eliminating the freshwater impact of a major apparel company could cost hundreds of millions to over a billion dollars annually.
While often overlooked, the tech sector has a significant water footprint. Data centers rely heavily on water for cooling, and in water-stressed regions, droughts and extreme heat have already forced some facilities to scale back operations. According to CDP, the broader services sector—which includes tech—faces $11.1 billion in water-related risk. Tech giants are increasingly acknowledging water as a material risk and investing in recycling systems and watershed restoration.
It’s important to note that while industry trends can indicate where risks are high, a company’s specific risk exposure also depends on geographic context. Nonetheless, the examples above show that no sector is immune to water challenges. From mines to malls, water can quickly become a limiting factor. Indeed, one in five companies reports water-related risks in their supply chain that could amount to a combined $77 billion in financial impact (CDP 2023) – a stark reminder that even if your own operations seem secure, your suppliers or customers might be vulnerable.
Water Risk Hotspots
Water risk is profoundly location-specific. The challenges a company faces in one location may be completely different from those at another site, and a company with dozens of facilities worldwide must consider each site's own water context.
Below are a few examples of global water risk hotspots that illustrate how varied local water situations can be:
Monterrey, Mexico
Monterrey is an industrial and economic hub of around 5 million people that has recently become emblematic of urban water stress. The city relies mostly on surface water reservoirs, supplemented by groundwater when surface supplies run low.
Physical water scarcity here is driven by a one-two punch: recurrent droughts and surging water demand from booming cities nearby and their heavy industries. In 2022, Monterrey suffered a severe drought that led to widespread water rationing—many residents had tap water only a few hours per day. The municipal water utility struggled to keep up with demand, highlighting infrastructure risk.
Additionally, pollution from urban, industrial, and agricultural sources in the area challenges the ability to treat water effectively to meed quality standards.
Ibaraki, Japan
Not all water risk hotspots are currently in crisis—some are areas of latent risk that warrant close monitoring. Ibaraki Prefecture in Japan (population ~2.9 million) has a relatively stable water supply mix, drawing from surface water, groundwater, and even reclaimed water for non-drinking uses.
To date, Ibaraki hasn’t experienced major water scarcity issues, and its infrastructure is modern. However, a detailed local analysis identified two risk aspects worth further monitoring. First, legacy pollution: Ibaraki has old metal mines that are no longer active, but they left behind contaminated sediments. Under normal conditions this isn’t a problem, yet a severe storm or earthquake could mobilize those pollutants and suddenly overwhelm water treatment systems. Second, flood risk: the region has a history of river flooding and typhoons. While there are robust flood defenses, increasingly extreme weather (and the ever-present seismic risk in Japan) means those defenses could be tested or even breached.
Ibaraki’s situation highlights the importance of looking beyond the obvious.
Zaragoza, Spain
Zaragoza, a city of about 700,000 in northeastern Spain, offers a snapshot of the compound water challenges faced in some developed regions. The city depends on the Ebro River for its water supply, a river that is experiencing multiple stressors. One major issue is water quality degradation: decades of intensive agriculture and livestock farming in the Ebro basin have led to high nitrate levels in the water, and invasive aquatic plants (fueled by nutrient pollution and altered river flow) further disrupt the ecosystem. This means companies and utilities in Zaragoza must invest more in water treatment to meet quality standards, and they face risks if treatment fails or if pollution spikes.
The second issue is scarcity exacerbated by droughts. Spain has suffered a series of droughts in recent years, and in the Ebro basin, heavy irrigation upstream combined with these droughts is significantly reducing river flow and groundwater recharge. The result is increasing stress on both surface water and the underlying aquifer. For industries around Zaragoza (which include automotive, chemicals, and breweries), water shortages have become a real concern, especially during summer months.
Location Matters
These examples are just three of many hotspots worldwide. Other notable ones include Cape Town, South Africa, which nearly ran out of water in 2018 (“Day Zero”), parts of Australia that oscillate between drought and flood, and regions of China where rapid industrialization clashes with limited water resources.
The key point for corporate leaders is that location matters immensely. A global water risk assessment will highlight which facilities or sourcing regions are in high-risk basins (using tools like WRI’s Aqueduct or WWF’s Water Risk Filter), but deeper analysis and action for those hotspots is paramount. Often, mitigating water risk in a hotspot goes beyond your own operations—it might involve collaborating with local stakeholders to address shared challenges. After all, a factory can’t succeed if the whole region is in water crisis.
The Water Risk Journey
To effectively manage water risk, companies should approach it as a strategic journey.
The Objective
Before diving into analysis, it’s important to define your objectives. Are you assessing water risk to meet disclosure requirements? To safeguard operations? To set sustainability goals? Clarifying the “why” will shape how you proceed. Begin by establishing a clear purpose for your water risk assessment. Common objectives include:
Key objectives for the water risk assessment may include:
Disclosure and Reporting: Many companies now face mandatory reporting to comply with frameworks like CDP Water Security, CSRS or TCFD. Thus, your assessment might focus on gathering company-wide data and ensuring it’s in line with those standards. You might prioritize breadth over depth, covering all facilities at a basic level to check the boxes for investor questionnaires and regulatory filings
Business Continuity: Alternatively, your goal may be to directly inform risk management and continuity plans. In this case, you’re looking to identify which specific sites or supply routes could shut down due to water issues and develop mitigation plans. The focus will be on high-risk locations and critical operations where a water disruption would be most costly.
Setting a Corporate Water Strategy and Targets: Many sustainability leaders use risk assessments to set a proactive water strategy, including context-based water targets. The idea is to move from understanding risk to defining how the company will manage and reduce it. An assessment geared toward target-setting will gather baseline data (how much water are we using, how much can we save) and consider the context of each site’s watershed.
Guiding Watershed Stewardship and Investments: Beyond internal actions, some firms aim to use the assessment to guide external water stewardship efforts. An assessment with this objective will combine internal data with external watershed data to pinpoint where your company can make a meaningful difference.
These objectives are not mutually exclusive—you might have to address all of them over time. However, being clear on the primary purpose up front helps tailor the scope.
Steps of Water Risk Assessments
Risk Screening: Start with a high-level risk screen across all your facilities and key supply regions to quickly identify high-risk areas and their specific risks. Many sustainability managers use this step to produce an initial report for internal leadership, investor disclosure or reporting purposes. It provides a water risk portfolio view of the company.
Prioritize Sites: Prioritize your high-risk sites based on business criticality and water importance. Evaluate both the level of water risk and the value of the site.
High-Risk Sites Deep Dives: For prioritized sites, conduct a detailed assessment that combines local data, stakeholder input, and forward-looking analysis. This involves collecting locally-relevant public data to understand contextual watershed issues, and engaging with facilities to understand their past water-related challenges and existing or planned mitigation measures.
Annual Recurrence of Water Risk Assessments
It is recommended to conduct the water risk assessment on an annual basis to provide the latest available information in company disclosures. Water conditions change quickly: rainfall patterns, drought severity and water quality can shift significantly year to year, especially under the influence of climate change. For this reason, reporting regulations regularly update their requirements, making annual assessments a good way to avoid compliance risks.
Plus, think of all that can happen in a year for a business. Companies open new facilities, expand production lines, enter new markets, and even change sourcing strategies. These changes can alter exposure to water risks, and stakeholders expect up-do-date insights. Annual water risk assessments allow you to spot trends and take early action—like adjusting water use targets, investing in site upgrades, or engaging with communities—before risks materialize into costly disruptions.
Stakeholders on Water Risk
Successfully managing water risk is a stakeholder exercise. Multiple groups both inside and outside your organization have a stake in how you address water challenges, and their support (or scrutiny) can determine your success.
Engaging Internal Stakeholders
Corporate sustainability managers must navigate internal dynamics to get buy-in and resources, while also satisfying external parties like regulators, investors, local communities, and partners. Let’s break down the key stakeholders:
Senior Leadership: Executives need to see water risk as a business issue, not just environmental compliance. Frame the impact in financial terms—like potential losses from drought or customer pressure on water practices. Tie water to broader goals like ESG or climate resilience. Highlight competitor action to build urgency. Leadership support is key to securing resources and embedding water in enterprise risk management.
Facility & Operations Teams: Operations teams are crucial for managing water on the ground. Engage them early to gather accurate data and implement practical solutions. Involving them builds ownership and turns corporate goals into local action. Some companies create site-level water task forces to foster two-way communication. Their buy-in is essential for executing projects like recycling systems or process changes.
All Employees & Departments: Creating a water-aware culture helps embed stewardship across the organization. Use training, campaigns, and team challenges to raise awareness. Involve departments like Procurement, Finance, and R&D to address water in supplier engagement, investment, and innovation. When everyone sees water as part of their role, it becomes easier to drive change and meet sustainability targets.
Investors & Regulators
Investors increasingly view water risk as financially material. Over 740 investors managing $136T now expect companies to disclose water use, site-level risks, and mitigation plans (CDP 2023). Firms that show clear water strategies gain trust and ESG credibility—those that don’t may face scrutiny.
Regulators are following suit. Frameworks like the EU’s CSRD now mandate detailed water disclosures, including usage in high-stress areas. Globally, stricter pollution limits and industrial water rationing are becoming more common. Companies that align early with these expectations—using tools like CDP or TNFD—avoid last-minute compliance scrambles and position themselves as forward-thinking.
Communities, NGOs & Consultants
Communities near company operations are deeply affected by corporate water use. Positive engagement—like improving shared water access—builds goodwill and reduces conflict. Neglect can lead to protests or lost permits.
NGOs proactively advocate to persuade businesses to apply water stewardship principles. they typically raise awareness about water risks, and some of them conduct different types of projects to mitigate water risks, for example, a water restoration project, such as reforestation projects, which can help improve water storage and quality.
Consultants also have a role in promoting water risk assessment and stewardship to their existing or prospective clients. Consultants can conduct water risk assessments, provide recommendations on mitigation strategies, and assist with reporting. Some consulting firms specialize more in risk assessment and others in reporting.
Challenges in Water Risk Mitigation
Some of the frequent challenges sustainability managers encounter include:
Data Gaps and Quality Issues
Many companies struggle to gather complete, accurate, and site-specific water data. Usage metrics may be missing, scattered across departments, or outdated. External data—like aquifer stress or regulatory thresholds—can be equally hard to obtain. The first water risk assessment often reveals blind spots, such as unknown water sources or missing supplier data.Integration and Reporting Complexity
Different audiences—CDP, regulatory bodies, internal teams—need different formats, and repurposing data across systems is time-consuming. Siloed reports and inconsistent figures erode credibility. Aligning water data with enterprise risk or ESG metrics adds another layer of difficulty.Organizational Misalignment
Even with a good assessment, companies may stall on action due to unclear ownership, competing priorities, or regional inconsistency. Water can sit between departments like EHS, operations, sustainability, and procurement. Without top-level mandates and cross-functional coordination, momentum often lags.
By addressing these challenges through effective communication, basin-level risk assessments, and engagement with local stakeholders, companies can enhance their water risk assessment initiatives and contribute to more resilient and sustainable water management strategies.
Turning Risk into Opportunity
Every challenge in water risk management presents an opportunity for smarter, more strategic responses. Here's how leading companies are overcoming the most common roadblocks:
Centralized Data Management
When data is incomplete or fragmented, risk assessments lack credibility and decision-making slows. Many companies struggle to track basic metrics—like water usage, discharge volumes, or supplier dependencies—let alone more complex variables like aquifer stress or climate exposure. This leaves critical blind spots in both operational and supply chain planning.
The solution begins with centralized, real-time data platforms that bring together internal usage metrics and external risk indicators into a unified system. Waterplan consolidates information from satellites, IoT sensors, regulatory databases, and company records, offering sustainability teams a dynamic, site-specific risk dashboard. Machine learning can even flag emerging threats—such as aquifer depletion or regulatory changes—before they escalate.
This centralized approach doesn’t just improve visibility; it also unlocks operational efficiency and cost savings. Companies that optimize water use, fix leaks, or install recycling systems not only reduce exposure but also cut long-term costs. Between 2010 and 2019, water prices in major U.S. cities rose by 60%—a trend seen globally as scarcity intensifies (Quantis). Firms that act now are hedging against future price hikes and avoiding costly emergency interventions later. In many cases, internal innovations like concentrated product formulas or water-efficient processes evolve into new business models or markets, turning stewardship into a growth opportunity.
Procter & Gamble (P&G) has used centralized water risk data to drive efficiencies across their operations. By identifying facilities located in water-stressed areas, the company has implemented contextual targets and prioritized watershed collaborations. Through a partnership with Waterplan, P&G has enabled real-time visibility into site-level risks, helping align local actions with global sustainability goals.
Integration with Broader Risk and Sustainability Goals
Water data doesn’t exist in a vacuum—it must feed into ESG reports, investor disclosures, regulatory filings, and internal dashboards. But translating one dataset into multiple formats often results in inconsistencies, duplication, and hours of manual work. This complexity can frustrate teams and obscure the strategic importance of water.
Leading companies address this by embedding water into their broader sustainability and risk architecture. Using standardized frameworks allows teams to align on consistent, comparable metrics across the board. When water performance is tracked alongside climate risk, supply chain resilience, and enterprise risk, it gains visibility with the C-suite and resonates with investor expectations. Amazon’s leverages advanced risk monitoring to measure the impact of their water stewardship activities, setting water replenishment targets and integrating sustainability into expansion planning, ensuring operational continuity in high-stress regions.
This integration also enhances access to capital and financing incentives. Increasingly, investors are rewarding strong water performance with inclusion in ESG indices, access to green bonds, or better loan terms through sustainability-linked financing. For companies that want to attract long-term capital, showing clear governance and measurable water outcomes is becoming table stakes. Water stewardship is also a reputational asset—being able to credibly claim "water neutral" or "water positive" status can strengthen consumer trust and community support, opening doors for expansion and partnership.
Proactive Risk Framing and Prioritization
Even the best data and systems can’t drive action if teams are misaligned. Water often sits between departments—operations, EHS, sustainability, procurement—with no single owner. Some regions may deprioritize water due to lack of past incidents, while others may face urgent, localized stress with little support. This fragmented ownership stalls progress and makes it hard to turn assessments into action.
To address this, companies are reframing water as a material business risk—not just an environmental concern. By highlighting the potential financial impacts of droughts, floods, or supply disruption, sustainability leaders can make a compelling case for investment. Prioritization frameworks help allocate resources where risk and business value are highest. Equally important is executive sponsorship: when water is championed by senior leadership, it gains staying power, budget, and accountability.
This shift in framing builds long-term resilience and competitive advantage. In a world of increasing water stress, companies that proactively secure water access and invest in local infrastructure (e.g., reservoirs, watershed restoration, drip irrigation in supply chains) are better positioned to withstand shocks. Their operations continue when competitors must shut down, and they often gain regulatory and community support. Resilience also ties into climate adaptation strategies—and companies that align water efforts with these broader goals may benefit from favorable insurance terms or government incentives.
Additionally, Colgate-Palmolive tackled internal silos by creating a cross-functional task force focused on water. Their collaboration with Waterplan helped unify sustainability, operations, and R&D under a shared platform, driving better coordination. This allowed Colgate to implement water reuse systems at high-risk plants, improving resilience and reducing water footprint.
Toward Water Resilience and Sustainable Growth
Water risk is no longer a niche concern—it has become a mainstream business issue that corporate sustainability leaders must master. By understanding the different dimensions of water risk, identifying where your company is most vulnerable—whether in specific facilities, supply chain segments, or products—and putting structured mitigation plans in place, you are future-proofing your business. The journey from awareness to action—grasping the basics, conducting assessments, engaging stakeholders, and leveraging technology—can transform water risk from a daunting challenge into a strategic advantage. Regulators are tightening standards, investors are scrutinizing disclosures, and consumers are watching how companies steward shared resources. For large enterprises, a robust water strategy is no less critical than a carbon strategy when it comes to long-term resilience and relevance.
The good news is that companies who embrace this challenge can unlock real, measurable value—more reliable operations, lower costs, stronger relationships, and a reputation for leadership in sustainability. If you’re just beginning, start small: get the data, build the case, and rally your team around the principle that every drop counts. Foster a culture of continuous improvement—because water risks evolve, and so must your approach. And above all, don’t do it alone: collaborate across departments, partner with others in your watershed, and engage with industry coalitions like the CEO Water Mandate. By doing so, you’re not only reducing risk—you’re helping build a more sustainable future for your business, your community, and the world.
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