Roles of companies in water management - extending the boundaries of private sector responsibility?

Working and discussion papers
May 2012

This paper reviews the policies and practices of companies in water use and water  management, and considers how they manifest an evolution of private sector roles, through examples of innovation by companies in sectors that make significant use of water: beverages/drinks, tourism, and mining and energy - with agriculture also considered in two respects.

The first issue examined is whether there are good business reasons for private companies in significant water-using sectors to adopt new practices in water ‘use’ (as defined). The report also considers how far business reasons extend to motivating companies to engage actively with governments and other water users in strengthening wider water ‘management’ (as defined) in developing countries, in response to the perceived or actual public governance gap, i.e. the ‘boundary-shifting’ issue.

The interest of ERD 2011/12 is in the role of the private and public sectors in achieving effective resource management for inclusive and sustainable growth. ‘Inclusiveness’ means, for example, the availability of jobs for poor sectors of the population, not just the production of wealth for elites, while the ERD terms of reference note that threats to the sustainability of water resources posed by climate change in the medium to long term are such that ‘business as usual’ is likely to involve too high an environmental cost, reducing the future sustainability of growth.

The conclusion of this paper is that, as far as the voluntary actions of commercial companies are concerned action (actions not imposed by law or regulation, or led by government policy), it is in maximising water-resource use efficiencies (companies’ own and those of their suppliers) that the private sector can make its greatest and most appropriate contribution. The examples reviewed here suggest that there are good business reasons for private companies in significant water-using sectors to adopt new practices in water use, subject to the qualification that business incentives differ according to how far water is (or is not) a ‘strategic’ business imperative in that sector and for that company.

As for wider water management, the material reviewed for this paper suggests that the business incentives for voluntary actions are currently limited to commercial companies protecting their own water supplies, and their own reputations, in line with their business goals, which appears to stop substantially short of ensuring the transition to inclusive and long-term sustainable growth in developing countries envisaged in the ERD.

The extent to which a company is public-minded depends fundamentally on its constitution and how the latter is interpreted and applied. It is this (alongside stock market rules, for quoted companies) which sets the parameters of what the company is for, and for whom.

A key step, therefore, in this examination of a possible ‘boundary-shifting’ evolution of private sector roles into areas of activity normally associated with public governance, is to consider the extent of companies’ roles and responsibilities according to corporate models and corporate governance. The ‘public governance gap’ in water management will not be filled by trying to stretch companies’ activities beyond their own constitutions and the business activities based on them. That would be simply to substitute the public governance gap with a ‘corporate governance gap’.

This paper was a background paper to the European Report on Development-ERD 2011/2012: ‘Confronting scarcity: Managing water, energy and land for inclusive and sustainable growth’.