Drinks giants face water pressure

You won’t find a food or drinks business that does not acknowledge they are at the sharp end of the world’s water crisis.  

Sandrine Ricard, director of sustainability and responsibility communications at Pernod Ricard, says the increase in water scarcity events, driven by climate change, could have “dire consequences” for the Scotch whisky industry unless mitigating action is taken now.  

Makiko Ono, president and CEO at Suntory Beverage & Food, is equally sober. “Water is the most important resource for our business. We prioritise efforts to use it responsibly, return it to nature and even restore it, aiming to actively lead the industry in this field.” 

But is the drinks industry really as stressed about water as it should be? João Brites, director of growth and innovation at US food rating and environmental accounting firm HowGood, suggests the answer is actually closer to “frequently no”. He explains: “While most drinks companies reference water stewardship in their sustainability reports, their understanding of water stewardship is often limited to ‘improving manufacturing water use’.” 

This definition is “quite problematic” for two reasons, Brites warns. First, it ignores the water used in agriculture to grow the ingredients that go into the drinks (on average more than 95% of the water used in a typical beer comes from agriculture and less than 5% from manufacturing). Second, it ignores the context in which the water withdrawal took place – the watershed – and its ability to serve the water quality and availability needs of communities and other stakeholders. “For example, very few companies report on water scarcity at the watershed level and even fewer report on water quality,” Brites explains.

That is a bit like promising to mitigate your greenhouse gas emissions but ignoring those in Scope 3 – the indirect emissions that lie up and down the value chain and which make up the lion’s share – or allowing them to rise. “Without a comprehensive grasp of the water-related risks facing their supply chain and an understanding of how their supply chain activities contribute to water insecurity, companies will be ill-equipped to anticipate potential disruptions, manage reputational risks, and capitalise on opportunities for action,” warned CDP in its Water Global Report 2023, published in March this year.

Assessing supply chains is not easy and can make for uncomfortable reading. Companies integrating suppliers into their water risk assessments are seven times more likely to report supply chain risks, CDP says. But this is the detail that investors increasingly demand.  

“Water is key to corporate ESG reporting,” explains Chris Hilson, professor of law and climate change at the University of Reading in the UK. He cites a forthcoming report from the university that states: “While corporate water risk assessments, reduction targets and water use sustainability reporting are key tools for addressing the problem, these need to include supply chains and not just [companies’] own operations.”

Water security data from CDP shows that 123 beverage companies reported through the platform in 2023 (87 of them involved in alcoholic drinks and 36 in non-alcoholic). Of those, 53 (43%) engage with their value chain on water-related issues. 

Data issued by The World Benchmarking Alliance (WBA) also exposes “worrying gaps” across private companies from a number of sectors in areas such as water use, ecosystem conservation and respecting local communities’ rights (and it’s those in the Global South that will feel the consequences of this “most acutely”). The good news is that more than one in four (29%) of companies are reporting water use reductions or disclosing water usage from water-stressed areas, which suggests a growing awareness of their role in ensuring water availability worldwide, the WBA says. 

Among the drinks brands the WBA assessed, Diageo scores highest (albeit still only manages 40.1 out of 100). On water specifically, the owner of Baileys, Guinness and Johnnie Walker is praised for having a time-bound target to reduce water withdrawal in its own operations and reports progress against the target.  

By 2030, Diageo wants to “reduce water use in our operations with a 40% improvement in water use efficiency in water-stressed areas”. A second target for the same year states Diageo is looking to “reduce water use in our operations with a 30% improvement across the company”.

“We continue to have a steadfast focus on water as a fundamental ingredient in our products,” says Kristin Hughes, the global head of sustainability at Diageo. “Last year, we hit a number of milestones in our water management, including 70% completion of replenishing more water than we use in water-stressed sites and a 21% improvement on water efficiency since 2020. We also expanded collective action across 20 priority water basins in 12 countries.” 

The WBA praised Diageo’s disclosures on withdrawals from water risk sites, a decrease in water pollution and regularly reporting on water pollution. Indeed, Diageo’s 2024 ESG index shows the company’s total water consumption stood at 5,400ML, of which 2,930ML were in “water-stressed” areas. There were also 193 spills or incidents during the reporting year, totalling over 11,300m3 of material. “We have established a stringent baseline for significant spills, reflecting our commitment to minimising environmental impact and ensuring sustainable management practices,” Diageo reported. 

Overall, only 15% of the 899 companies (from all sectors) assessed by WBA are reporting metrics on discharged pollutants and just 4% have set targets to reduce them. Countries including in South Africa and Jordan have reported that chemical oxygen demand and bio-chemical oxygen demand concentrations from beverage plant wastewater far exceed standard discharge limits. This can have a variety of water quality, ecological and health-related impacts, such as surface water acidification, eutrophication, ecotoxicity and groundwater contamination. 

The pollution of water makes tackling the risks brought by climate change much harder. Soil run-off, microplastics and forever chemicals are all live issues that the drinks industry must confront head on. The realisation that water scarcity is about more than reducing water use – it is also about the quality of available water for essential human needs like drinking and bathing – is seeping through the C-suite slowly, however.  

Among the 17 major beverage companies assessed by Ceres recently, only four had established water quality-related targets for their direct operations, yet none of which were context-based or include the supply chain. Some, like PepsiCo, had applied their targets to all operational discharges. PepsiCo topped this particular water table with a score of 55.5 out of 90. The average was 33, which is higher than that attained by the food sector (25.1). The Ceres benchmarks show pockets of positive interventions in relation to water across food and drink businesses but few are excelling on all aspects of water stewardship. 

For example, about half the companies had board and senior management oversight of water management strategies and link incentives for executives to water targets and goals. However, only 36% of the companies integrate water risks and opportunities into business planning for both direct operations and supply chains. CDP’s data showed 47 (38%) of the 123 drinks companies reporting provide C-suite incentives for water action to their employees or board members. 

Last month, the efforts of big companies to restore nature and the ecosystem services – including water – on which they rely should have been on show at the 16th edition of the UN conference on biodiversity (COP16). Instead, the news feed remained bleak. Whether the heightened risks and wall to wall media coverage of the issues has seen the corporate hydro-hyperbole drain away is unclear. 

The UN Emissions Gap report published last month warned without action the world could warm by 3.1°C this century, which would of course wreak havoc in terms of water and the beverage supply chain: in some places and cases there would be far too much and others far too little.  

The UN’s forecast is full of complications and some of the context is (a fraction) less concerning. Yet the direction of temperature travel is clearly pernicious. “The time for corporates to ignore water scarcity is passed,” says Jay Famiglietti, the global futures professor at Arizona State University and the director of science for the Arizona Water Innovation Initiative. “There is growing consumer and non-profit pressure for corporates to step up and champion global water stewardship in order to help sustain economic growth, food production, and to play a leading role in protecting the environment.” 

Famiglietti is among those who pronounce “water is the new carbon”. This notion, which has been around for more than a decade, is not about tackling one or the other, but both. Climate and water risk are inextricably linked. Consider that the Amazon River Basin is facing its worst drought in more than 40 years and this is fuelling wildfires that are releasing huge amounts of greenhouse gases and reducing rainfall, which leads to extended droughts. 

Diageo’s Hughes underlines that the company sees the water crisis as a climate crisis and that they are deeply interlinked, which, she says, is why “we focus on carbon and water as the two most material sustainability risks and opportunities to us”.  

Pernod Ricard chief sustainability officer Noémie Bauer is also on the same page. “Nature and climate are interconnected," she wrote on social media recently and so “solving biodiversity loss, water scarcity and climate change will need common solutions”. 

One possible solution (and perhaps one the food and drink sector is over-reliant on) is regenerative agriculture. All the hype of late has been about the potential carbon savings from using regenerative approaches to produce the crops on which the sector relies.  

But, as Bruce Lankford from the University of East Anglia in the UK and Stuart Orr, freshwater lead at WWF, based in Switzerland, wrote in a paper for Frontiers in Sustainable Food Systems in 2022, water is “both an input and a contributor to regenerative agriculture, as well as being an outcome of or beneficiary of regenerative agriculture”. 

For example, hedges and trees can act as flood defence systems, Healthier soils can slow water’s path and improve crops’ resilience to drought. Knock-on impacts can be less need for chemical inputs, which in turn reduces problems from pollution. 

Coca-Cola has set a target to achieve 100% circular water use – or regenerative water use – across 175 facilities identified as “leadership locations” by 2030. This means “reducing, reusing, recycling and replenishing the water used to produce its beverages”. 

In the UK, Coca-Cola is working with local rivers trusts Thames21, South East Rivers Trust and Northumberland Rivers Trust to help replenish the aquifers and chalk streams in water-stressed areas in south-east England and addressing the issues in flood-prone areas like the north east. “These partnerships are not always easy and never straightforward but we know that the hours, days and weeks we spend building relationships and understanding produce real results for our rivers,” says the Rivers Trust. 

Some are sceptical about such corporate partnerships. “I’m a big supporter of engaging with the big polluters to change their ways, such as the Ocean Cleanup Project is doing with Coca-Cola, but I am deeply suspicious of them talking about water as they have a very dark past on this issue,” says one industry consultant. 

Coca Cola has previously been accused of “drinking the world dry” by campaigners. It isn’t only the soft beverage behemoth that have found themselves in the firing line either. Two years ago, a severe drought in northern Mexico led to the country’s president calling on beer companies to move their operations to the less water-stressed south. In 2020, residents in the city of Mexicali voted against plans Constellation Brands had for a new facility due to fears over water usage. Constellation moved the project to Veracruz. 

Even the famously wet parts of the world face pressure. Scotland has a reputation for its dreich (bleak) weather and an economy that is heavily reliant on whisky production. Water is one of three ingredients in the drink and there are headaches coming. “Scotland’s climate is changing,” warned a report led by researchers at The James Hutton Institute this year, adding there is “likely to be an overall deficit in climate-water balance during the summer months in eastern Scotland”.  

The number and duration of surface water drought events are also “likely to double by the middle of the century” and there are “questions about the resilience of groundwater supplies, particularly in areas with low storage and decreasing potential recharge”. 

Water scarcity and quality is a key concern for the industry, admits Ricard at Pernod Ricard, which runs its Scotch whisky business through its Chivas Brothers division. 

She says water stewardship is “a critical part of Chivas Brothers’ vision to shape the future of sustainable Scotch” and adds: “We have set targets in place to reduce our consumption and return as much as possible back to its original source. However, the issue of water scarcity has implications that go beyond our industry.”