As economic growth increases, so does the pressure on ecological resources. Water scarcity and pollution are already limiting the economic and social development of many regions. Even in Central Europe, droughts, overexploitation and (industrial) pollution are affecting agriculture, industrial production and, increasingly, communities.
The concept of the Water Footprint (WF) helps companies to determine which dependencies on freshwater exist, and which of their activities influence local and regional water systems. The term was coined in the early 2000s by the Dutch researcher Arjen Hoekstra and takes a holistic view of water consumption. A distinction is made between three categories.
- Blue water: Extracted groundwater or surface water, e.g. for cooling, purification or irrigation
- Green water: Rainwater absorbed by plants and soils
- Gray water: The volume of water needed to dilute pollutants to (regulatory) safe concentrations
Together, these categories show not only how much water an organization uses, but also what activities affect water quality. For small and medium-sized enterprises (SMEs), understanding their water footprint offers an opportunity to reduce costs, increase efficiency, and reduce environmental risks (and derivable liabilities).
From evaluation to action
A water footprint analysis follows four basic steps:
- Set boundaries: Determine what will be measured, from product to location, or the entire company
- Collect data: Measure the amounts of water used and emitted, and the degree to which it is contaminated
- Assess: Assess whether water use is sustainable in the local context
- Action: Implement measures such as recycling systems, supplier partnerships or local water conservation projects
This process can also be found in the TNFD’s LEAP framework (Locate, Evaluate, Assess, Prepare), which encourages companies to consider water not only as an environmental factor, but as a component of financial and operational risks.
Water risk is business risk
According to the European Environment Agency (EEA), about a third of the EU is affected by heat and water stress during the summer months. Climatic changes are exacerbating this through prolonged droughts, floods and rising temperatures. Limited water availability can disrupt production, increase costs, and disrupt supply chains. Water is therefore not only an environmental risk, but also a business risk.
From practice: When advising data center developers, water unexpectedly turned out to be a limiting factor. Although large amounts of water are required for cooling, consumption and associated risks are often neglected in risk management, even in groundwater-sensitive regions. With increasing digitization and AI, the risk of local conflicts of use between companies and municipalities increases. The following conclusion follows: Every company, regardless of size or industry, should include water scarcity and resilience in its strategic planning.
Why water footprint analyses are important for SMEs
- Regulatory and reporting obligations: In accordance with the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS), water is a central reporting topic (ESRS E3 – Water and Marine Resources). Companies must disclose:
- Dependencies on water and marine resources
- Impacts along the value chain
- Risks, opportunities and mitigation measures
- Targets and progress indicators
Even if smaller companies are not (yet) directly obliged to report, larger customers will increasingly demand water-related data from their suppliers. Early adaptation strengthens the market position and prepares for future regulatory requirements.
- Integration of Nature-Related Risks (TNFD): The TNFD framework describes nature risks as financial risks. If water becomes scarce or polluted, it can reduce the value of the company or disrupt operations. A water footprint analysis transforms this risk into action-oriented knowledge and thus connects environmental issues with strategic planning.
- Efficiency, cost savings and reputation: Efficient water management saves water and energy, reduces wastewater costs and supports long-term operating permits in regions with water stress. A transparent approach to water resources strengthens a company’s reputation with investors and creates trust among customers and authorities.
The bigger picture: AI, infrastructure and water
The digital transformation is giving rise to new water-intensive industries. Data centers and cloud services require large amounts of water for cooling and energy production. With ongoing digitalization, the need for data, energy and ultimately water is increasing. SMEs operating in these sectors can differentiate themselves by developing processes with a low water footprint from the start. For the next generation of resilient business models, it will therefore be necessary to combine technological innovation with sustainable use of resources in order to survive in this regulatory environment.
Result
A water footprint analysis shows companies not only how much water they use, but how closely this consumption is linked to costs, risks and opportunities. It combines ecological responsibility with strategic corporate management. As the EU is gradually transitioning from voluntary to mandatory sustainability reporting, early adaptation and recording of one’s own water footprint is becoming a competitive advantage.
In the future, the success of a company will depend not only on the economic conditions under which it produces, but also on how much water it needs to do so. After energy, water will be the limiting factor for economic developments in this century, with all the associated distortions.
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Data sources:
Directive (EU) 2022/2464 (CSRD), Art. 1(4): undertakings must disclose “information necessary to understand the undertaking’s impacts on sustainability matters, and how sustainability matters affect its development, performance and position” https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464
ESRS E3 – Water and Marine Resources require disclosure of dependencies, impacts, risks, targets, and metrics. https://www.efrag.org/lab6
EU Taxonomy Regulation (2020/852) includes “sustainable use and protection of water and marine resources” as an environmental objective. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32020R0852
Hoekstra AY et al (2011) The water footprint assessment manual: setting the global standard. Earthscan, London, UK
TNFD Recommendations (2023) promote integrated climate- and nature-related disclosures, recognising freshwater as a key dependency. https://tnfd.global/recommendations/
UN SDG 6, Clean Water and Sanitation: “Ensure availability and sustainable management of water and sanitation for all.” https://sdgs.un.org/goals/goal6