Water management has become an important business resilience issue. Companies must demonstrate how they protect water resources, manage water security, and navigate physical risks like droughts and floods.

This article isn’t only for companies in scope of the CSRD. It’s for any organization that wants to report credibly on its environmental footprint: EU or non-EU, listed or private, big or small. I use European Sustainability Reporting Standard (ESRS) E3 as a clear and practical blueprint for water disclosure. If CSRD doesn’t apply to you (yet), you can still use this guide to structure your reporting and align with global expectations like corporate water stewardship.

ESRS E3 addresses how companies disclose their water-related impacts, risks, and opportunities, along with the strategies and metrics used to manage them. It is designed to align business reporting with, among others, the EU Water Framework Directive, the EU Drinking Water Directive, and the emerging EU Water Resilience Strategy.

In this article, you will learn:

✅ What water encompasses in a sustainability framework
✅ The main objectives of ESRS E3
✅ How ESRS E3 connects with other standards like Climate (E1), Pollution (E2), and Affected Communities (S3)
✅ The key components of ESRS E3 (E3-1 to E3-4), from policy to site-level metrics
✅ Acronyms and terms used in ESRS E3

By the end, you’ll gain a clear, structured understanding of reporting on water and ESRS E3.

2. Short introduction to water and marine resources

First of all, it is important to know what water actually encompasses in a reporting context. In short: Water includes freshwater as well as brackish water, surface water, groundwater, seawater, produced water, and third-party water supplies.

Water and marine resources can be seen as the lifeblood of our planet. They sustain diverse ecosystems and play a vital role in supporting life. Water and marine resources consist of bodies of water such as rivers, lakes, oceans, and seas.

Water and marine resources are very important for several reasons. Beyond serving as a source of drinking water for humans, these resources play a crucial role in supporting diverse flora and fauna. Regarding climate change, the oceans act as a major carbon sink, absorbing carbon from the atmosphere. This absorption helps mitigate the impact of greenhouse gas emissions on the climate. Additionally, marine resources contribute significantly to global food security, as fisheries provide food for countless communities worldwide.

However, these invaluable resources face a multitude of challenges. Overfishing, pollution, climate change, and habitat destruction pose threats to the delicate balance of aquatic ecosystems. The threat to global water systems has officially crossed a tipping point. Scientists at the Stockholm Resilience Centre have confirmed that we have breached the planetary boundary for freshwater change (covering both “blue water” in rivers and lakes, and “green water” held in soil and vegetation). This means human activity has disrupted the global water cycle far beyond the safe operating space that maintains planetary stability.

To address water crises and prepare European infrastructure for a more volatile climate, the EU has updated its regulations to protect aquatic environments and support corporate water stewardship.

Because water risks pose such a direct, measurable hazard to both global health and business continuity, it is included as the third environmental standard (ESRS E3) in the CSRD.

Here follows a brief timeline of water frameworks by the European Union:

• October 2000: The EU published the Water Framework Directive (2000/60/EC). This foundational legislation established a unified, basin-wide approach to achieving a “good status” for all clean surface waters and groundwaters across Europe.

• December 2020: The EU adopted the revised Drinking Water Directive (2020/2184/EU). This updated framework introduced strict safety standards to protect human health from water contamination, addressing emerging chemical risks and improving access to clean water.

• Recent developments: The EU launched initiatives under the EU Water Resilience Strategy, mainstreaming hydrological risks directly into corporate governance to protect businesses and ecosystems from structural water scarcity and intense flooding.

Read the EU Water Framework Directive here: Water Framework Directive - European Commission

Read more about the EU Water Resilience initiatives here: EU Water Resilience Strategy

3. Understanding the objective of ESRS E3

The objective of ESRS E3 is for companies to disclose information on water whenever it represents a material impact, risk, or opportunity. This ensures stakeholders understand how a company withdraws, consumes, discharges, and stores water, especially when operating in highly sensitive environments.

To help you gain a broader perspective beyond the regulatory disclosure requirements, I have published several deep-dive articles breaking down key hydrological concepts, risk assessments, and metric measurement frameworks.

Articles about understanding foundational water & ocean systems:

Articles about water risk terminology & supply chain assessment:

Articles about reporting & metrics:

ESRS E3 interacts closely with several other sustainability standards:

• ESRS E1 Climate Change: E1 covers acute and chronic physical risks driven by climate change—such as droughts, changing precipitation patterns, and severe floods—which directly dictate water availability.

• ESRS E2 Pollution: E2 handles the quality and chemical contaminants released into water bodies (including microplastics), whereas E3 focuses primarily on the volumetric flows of water use.

• ESRS E4 Biodiversity: E4 looks at how aquatic ecosystem degradation impacts wildlife, while E3 tracks the physical resource extraction causing that ecological strain.

• ESRS E5 Resource Use: E5 tracks material circularity, but any marine or water-based raw material inflows are explicitly cross-referenced with E3.

• ESRS S3 Affected Communities: S3 addresses the social impact on local populations whose direct access to safe, clean, or abundant water might be compromised by corporate operations.

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4. The different components of ESRS E3

While ESRS E1 is structured around three pillars (Strategy, Implementation, and Targets/Metrics), ESRS E3 is structured into two pillars: Implementation (how you govern your water footprint) and Targets & Metrics (the actual data).

Because water is highly context-specific, ESRS E3 places a heavy emphasis on geographical disaggregation—meaning companies must report details at the local river basin or site level if they operate in water-stressed areas.

Read more below to explore each element in detail. I’ve also linked to my other articles below, where you can dive deeper into each specific topic, from ESRS E3-1 through ESRS E3-4, for a more comprehensive understanding.

E3-1, E3-2: Policies, actions, and resources

E3-1 (Policies): companies must disclose their explicit strategies for managing water resources. Crucially, if an organization owns operations or sites located in areas with high water stress that are not covered by a formal water policy, it must explicitly state this fact to investors.

Read more about ESRS E3-1 here:

E3-2 (Actions and resources): requires reporting on the operational actions taken to optimize water efficiency (such as installing closed-loop recycling infrastructure) and detailing the financial resources (CapEx/OpEx) dedicated to executing these resilience projects.

Read more about ESRS E3-2 here:

E3-3: Targets related to water

E3-3 focuses on the disclosure of specific, measurable goals for reducing water consumption or improving recycling rates. In line with cross-cutting rules, these targets should be tied to specific geographic basins or areas identified as water-stressed.

Read more about ESRS E3-3 here:

E3-4: Water metrics

E3-4: this is the technical, data-heavy section of the standard. For their own operations, companies must disclose their data in cubic meters across different categories.

Read more about ESRS E3-4 here:

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4. Acronyms and terms

Relevant Sources

Freshwater planetary boundary has been crossed since the mid-twentieth century - Stockholm Resilience Centre

The new planetary boundary for freshwater change: key findings and their potential to guide water management and policy - Stockholm Resilience Centre

Revised European sustainability reporting standards

ESRS E3

We have established the rules (E3-1), detailed the operational work and investments (E3-2), and set the specific goals (E3-3). Now, we arrive at the scorecard: ESRS E3-4.

This disclosure requires undertakings to report the hard quantitative data regarding their water performance. It moves the conversation from strategic ambitions to absolute volumes, allowing stakeholders to see exactly how much water you use, where you get it from, and where it goes.

I will briefly explain the requirements for disclosing water metrics.

More elaborate articles are, or will become available, which can be found on: Sustainability Simplified.

2. What are water metrics?

Water metrics are the standardized, quantitative measurements of how water flows through an organization’s operations.

To report correctly, you must understand the fundamental difference between key hydrological terms:

• Withdrawal (W): The total amount of water you take in from any source (e.g., surface water, groundwater, municipal water supply).

• Discharge (D): The total amount of water you put back out into the environment or to a third party (e.g., sending wastewater to a treatment plant or river).

• Consumption (C): The water that is permanently removed from the local water cycle by your operations. It is what you take in minus what you return (e.g., water that evaporates in cooling towers or is incorporated into your final product).

• Recycled/Reused water: The total volume of water recycled and reused within operations.

• Water stored: The total volume of water stored.

The ESRSes define metrics as follows:

“Qualitative and quantitative indicators that the undertaking uses to measure and report on the effectiveness of the delivery of its sustainability-related policies and against its targets over time. Metrics also support the measurement of the undertaking’s results in respect of affected people, the environment and the undertaking.”

3. ESRS E3-4 at a glance

ESRS E3-4 requires that the undertaking disclose key water performance metrics for its own operations in accordance with the provisions of ESRS 2 GDR-M.

To comply with the standard, you must disclose the following:

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4. How E3-4 links to the rest of ESRS E3

E3-4 is the ultimate proof of performance for your water strategy:

• E3-1 (Policy): Establishes the commitment to reduce your impact on vulnerable water basins.

• E3-2 (Action): Describes the installation of a new water recycling system.

• E3-3 (Target): Sets the goal to reduce freshwater consumption in water-stressed areas by 30% by 2030.

• E3-4 (Metric): The reality check. Reports the actual cubic meters consumed, withdrawn, discharged, stored, and recycled/reused, verifying whether the actions (E3-2) achieved the target (E3-3).

5. Bottom line

E3-4 is heavily data-dependent, and water accounting is notoriously tricky. To report effectively:

• Master the definitions: Strictly follow the standard definitions for withdrawal, discharge, consumption, recycling/reuse, and storage.
  

• Pinpoint the stress: The most highly scrutinized number in this disclosure will be water consumption in areas with water stress. Investors are increasingly treating this specific metric as a proxy for physical climate risk.
  

• Meter your operations: Estimation is allowed, but primary data is always preferred. If you don’t have water meters installed at your major production sites, you need to start planning those CapEx investments now.

• Provide contextual detail: Accompany the raw metrics with local environmental context and clear methodological assumptions to make the data understandable to users.

Relevant Sources

ESRS E3

ESRS E3

As water scarcity intersects with rising operational costs, how a business manages and talks about water has become a core part of its long-term success.

To navigate this landscape, companies must move away from vague, generalized talk about “water usage” and adopt a clear, precise vocabulary.

This article defines seven water metrics—water use, water withdrawal, water discharge, water consumption, water recycling, water reuse, and water storage. By understanding these distinctions, you can build accurate, reliable water risk assessments.

In this guide, you will learn:

✅ About seven core corporate water metrics and their differences.

✅ The difference between initial water withdrawal and water consumption.

✅ A case study showing all seven metrics in practice.

✅ How to deploy a tool to convert raw volumetric logs into a printable dashboard.

By reading this full article, you will gain the clarity to identify internal circularity opportunities, and clearly communicate your organization’s water stewardship to stakeholders.

2. Seven water metrics explained

To build an accurate water accounting model, an organization must view its operations as a bounded system. Water flows across these corporate boundaries from local environments, moves through internal processes, and either returns to the source or is lost to the local ecosystem.

To capture the full scope of these interactions, established hydrological and environmental engineering practices rely on a combination of seven metrics.

1. Water use

Water use is the broadest classification of human interaction with water resources. It covers all operational processes where water provides a business benefit. Crucially, this includes both activities in which water is physically taken from a source and in-stream activities, in which water provides value right where it sits without being moved.

Because it includes these non-extractive processes, a company can record massive amounts of water use without actually lowering the water level in the surrounding environment.

2. Water withdrawal

Water withdrawal is the total absolute volume of freshwater removed from any natural ground or surface water source—such as an aquifer, river, or lake—or from a municipal utility line. This metric must be measured before any portion of that water is treated, recirculated, or discharged. It serves as the primary indicator of the initial, immediate demand a company places on local water supplies.

3. Water discharge

Water discharge is the total volume of water that has passed through an operational system and is then released intentionally back into the environment. This includes returns made to surface water bodies, oceans, underground injection wells, or municipal wastewater treatment networks.

4. Water consumption

Water consumption is the net volume of water withdrawn that is permanently or temporarily lost to the immediate, local ecosystem. Water is classified as consumed if it undergoes one of three fates: it evaporates into the atmosphere, it becomes physically integrated into a commercial product or crop, or it is discharged into a completely separate geographic basin, preventing it from returning to the local source from which it was pulled.

5. Water recycling

Water recycling is the internal practice of capturing wastewater or run-off from a specific operational step, treating it to an appropriate baseline quality standard, and feeding it right back into the exact same operational cycle. This creates a tightly closed loop that directly lowers the facility’s need to make new, external water withdrawals.

6. Water reuse

Water reuse is the practice of capturing wastewater from one distinct business function, treating it if necessary, and routing it to a completely different process or application within the organization. This represents a cascading system of utility, maximizing efficiency by matching lower-purity wastewater with operational applications that do not require pristine freshwater.

7. Water storage

Water storage is the net volumetric quantity of water held securely on-site within physical, human-made containment boundaries—such as storage tanks, reservoirs, or holding ponds—before its ultimate use, treatment, or discharge. Storage acts as an operational buffer, protecting production continuity against municipal supply disruptions or seasonal scarcity.

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3. The operational flow: A day inside the plant

To ground these definitions in real-world corporate strategy, let us walk through a practical case study. Imagine an enterprise-scale beverage processing plant located near a major river basin.

By mapping the facility’s daily data across all seven metrics, we can show how one can use this framework to identify hidden operational risks and measure infrastructure efficiency.

1. Water use in action

The plant operates a massive steam boiler system, cooling towers, a bottling line, and facility landscaping. Over a 24-hour shift, the total volume of water actively circulating through these operations clocks in at 48,300 m³ (combining 40,000 m³ in the boilers, 5,800 m³ in the cooling towers, 2,000 m³ on the bottling line, and 500 m³ routed to landscaping). This is the facility’s water use.

You can use these formulas as well:

The practical application: You can use this number to understand the absolute scale of the plant’s internal operational dependence on water. It tells engineers how much total fluid volume must be pressurized, piped, and treated across internal facility lines to keep the assembly lines moving—regardless of how much water is pulled from the outside environment.

2. Measuring water withdrawal

To keep those operations running, the facility cannot rely solely on what is already inside the building. On this day, the facility pumps 10,000 m³ of freshwater directly from the adjacent river. This is the facility’s water withdrawal.

The practical application: The sustainability team uses this metric to evaluate the plant’s legal compliance and exposure to external environmental risks. If the local government places a drought restriction on the river, or if municipal water tariffs spike, this 10,000 m³ represents the exact point of financial exposure.

3. Tracking water storage buffers

At the start of the day, the facility’s on-site storage tanks are partially empty. Of the water withdrawn from the river, the plant diverts 200 m³ to top off its tanks to protect against potential municipal pressure drops later in the week. This volume represents a positive change in water storage of +200 m³.

The practical application: By isolating this storage buffer, the accounting team ensures that water merely sitting in a tank isn’t accidentally miscategorized as operational waste or environmental loss.

4. Maximizing efficiency via water recycling

If the plant operated on a linear system, it would have run out of water hours ago, since its daily process needs 48,300 m³, vastly exceed what it took from the river which was 10,000 m³.

To bridge this gap, the plant runs a closed-loop recycling system on its steam boilers. It continuously captures hot condensed steam, treats it instantly, and loops 38,000 m³ right back into the same boilers. This is water recycling.

The practical application: This metric directly proves the value of the plant’s infrastructure investments. Without this closed-loop recycling system, the plant would have been forced to withdraw nearly four times more water from the river, drastically increasing its environmental footprint and pumping costs.

5. Implementing circular economy through water reuse

Next, look at the facility’s bottling line. After rinse water is used to clean the outside of beverage bottles, it becomes mildly contaminated with dust and label adhesive. It can no longer be used to clean food-grade machinery.

Instead of draining it, the plant routes 500 m³ of this graywater to an on-site filtration system and pipes it outside for irrigation of the corporate landscaping. This routing is water reuse. Ultimately, this water is lost to the atmosphere via evapotranspiration, making its final fate water consumption.

The practical application: Separating reuse from recycling allows the sustainability director to show the board exactly how the company is executing its circular economy strategy by cascading water down from high-purity processes to lower-purity applications.

6. Quantifying environmental return with water discharge

After accounting for internal loops and storage, the plant safely returns 1,800 m³of fully treated, cooled water back into the river channel. This is the plant’s water discharge.

The practical application: This metric is critical for local environmental compliance. The plant’s engineers must continuously monitor this volume to ensure the discharge meets strict regulatory limits regarding temperature and chemical purity so it does not harm local aquatic life.

7. Calculating net corporate water consumption

Finally, we look at what was permanently lost to the local watershed. During the day, the company fills thousands of bottles with juice, physically sealing 1,500 m³ of water inside products that are shipped away.

At the same time, the facility loses water to the atmosphere across three areas: 5,800 m³ evaporates from the cooling towers, 200 m³ evaporates from the boiler cycle, and 500 m³ is lost to evapotranspiration through the landscaping. Together, this combined loss of 8,000 m³ represents the plant’s absolute water consumption.

Using a fundamental mass-balance formula, the metrics check out perfectly:

The practical application: This final figure is what the C-suite reports to investors and watershed managers. It shows the net volumetric depletion the company caused to that specific local ecosystem over a single operational day.

4. High-level summary for ESG dashboards

When presenting these numbers side by side, sustainability professionals face a challenge: how to make complex volumetric engineering data instantly scannable for C-suite executives.

To overcome this challenge, you can use the Corporate Water Footprint Snapshot Tool built entirely inside standard Excel. It takes these exact case-study inputs and automatically visualizes the entire system balance.

You put your data into this sheet:

Which gets automatically translated into this printable dashboard:

Think of this toolkit as a quick scan or a high-impact snapshot of your water numbers. It is built to give you a fast, clear overview of your operations right now.

• Best used for: Quickly checking a single facility’s or company’s current water balance, finding out your recycling/reuse scores, and spotting immediate financial risks or savings opportunities. It is perfect for consultants, plant managers, and sustainability teams who need an instant baseline.

• What it is NOT: This is a static, single-period assessment tool. It is not a giant, multi-year database, a historical tracker, or a forecasting tool.

• Tip for long-term tracking: If you want to use this to track performance over time, simply save a brand-new copy of this file for each individual reporting period (e.g., Corporate Water Footprint Snapshot Tool_Q1_26.xlsx, Corporate Water Footprint Snapshot Tool_Q2_26.xlsx).

📥 Download the Corporate Water Footprint Snapshot Tool

Corporate Water Footprint Snapshot Tool

Mastering these seven metrics can help you provide valuable insights into your environmental impact and how to manage resources in both low-risk and high-risk areas.
Further, transparency helps track progress toward broader corporate sustainability goals and allows stakeholders to hold organizations accountable for their impact.

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Relevant Sources

The use of corporate external environmental reporting in the evaluation of the state environmental policy | Economics and Environment

Assessing the environmental impact of freshwater use in LCA: established practices and current methods - Environmental Science: Water Research & Technology (RSC Publishing)

A review of water stress and water footprint accounting - the University of Groningen research portal

If policies (E3-1) set the rules and actions (E3-2) describe the work, then targets define the destination. ESRS E3-3 asks undertakings to disclose the specific, measurable goals they have set regarding water consumption, withdrawals, discharges, and water stored.

This disclosure provides the benchmark for accountability. Because water is often a localized resource, vague global ambitions are no longer sufficient. E3-3 requires you to translate high-level water stewardship commitments into trackable, location-specific numbers.

I will briefly explain the requirements for disclosing water-related targets.

More elaborate articles are, or will become available, which can be found on: Sustainability Simplified.

2. What are water targets?

Water targets are measurable, time-bound objectives designed to manage an undertaking’s material water impacts or risks.

According to the cross-cutting standards, targets regarding material impacts must be outcome-oriented. This means they must focus on the actual environmental result (e.g., cubic meters of water saved) rather than just an internal process (e.g., conduct three water audits).

Typical examples include:

• Withdrawal: Reduce absolute freshwater withdrawal by 40% by 2030 against a 2022 baseline.

• Discharge/Quality: Achieve 100% zero-liquid discharge at all manufacturing sites by 2028.

• Efficiency: Increase the proportion of recycled/reused water in operations to 60% by 2026.

• Water stress: Reduce water withdrawal by 30% across facilities located in areas with water stress by 2030.

The ESRSes define targets as follows:

“Measurable, outcome-oriented and time-bound goals that the undertaking aims to achieve in relation to material impacts, risks or opportunities. They may be set voluntarily by the undertaking or derive from legal requirements on the undertaking.”

3. ESRS E3-3 at a glance

E3-3 requires that “the undertaking shall disclose its water-related targets in accordance with the provisions of ESRS 2 GDR-T“.

In addition, Application Requirement AR 3 for paragraph 14 explicitly specifies that:

“In line with the scope considerations set out in ESRS 2 GDR-T, paragraph 51(c), the undertaking shall, where relevant, express water-related targets with reference to specific geographic areas, such as areas with water stress.”

To comply with ESRS E3-3 and GDR-T, the disclosure must include:

If the undertaking has not set any measurable outcome-oriented targets for a material water topic, it shall disclose whether and, if so, how it nevertheless tracks the effectiveness of its policies and actions.

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4. How E3-3 links to the rest of ESRS E3

Targets provide the necessary context to evaluate your raw data:

• E3-1 (Policy): Establishes the commitment to reduce freshwater reliance in vulnerable regions.

• E3-2 (Action): Details the investment in a closed-loop cooling system at a specific facility.

• E3-3 (Target): Sets the measurable goal (e.g., reduce freshwater withdrawal at that facility by 50% by 2028).

• E3-4 (Metric): Provides the actual cubic meters withdrawn, consumed, or discharged; without the target in E3-3, the metric in E3-4 is an isolated number, but the target tells users whether that number represents progress.

5. Bottom line

E3-3 demands precision and localized context. To report effectively:

• Ditch the global average: Move away from generic aggregate targets. Targets should be expressed with reference to specific geographic areas, particularly river basins experiencing water stress.

• Define the baseline clearly: Explicitly state your starting point (baseline year and value) so progress can be tracked over time.

• Ground targets in scientific evidence: Where relevant, leverage conclusive scientific evidence and biophysical information regarding local ecological thresholds to set ecologically grounded, context-specific targets.

Relevant Standards

ESRS E3

ESRS E3

If policies (E3-1) are the blueprint, actions and resources are the construction phase. ESRS E3-2 asks undertakings to describe the concrete steps they are taking—and the financial or human resources they are spending—to manage their material water impacts.

This disclosure helps you demonstrate that your water policy is more than a document by showing the operational projects and financial investments that support it.

I will briefly explain the requirements for disclosing water-related actions and resources.

More elaborate articles are, or will become available, which can be found on: Sustainability Simplified.

2. What are water actions?

Water actions are the specific operational initiatives, projects, or changes in practice designed to achieve the objectives of your water policy. Resources refer to the financial capital (OpEx and CapEx) or workforce personnel dedicated to implementing those actions.

Because water is mostly a local issue, these actions are usually highly specific to the facilities or supply chain nodes where water risks are most acute.

Typical examples include:

• Infrastructure upgrades: Allocating €2M in CapEx to install closed-loop water recycling systems at a manufacturing plant.

• Process changes: Transitioning to dry-cleaning methods for production lines to eliminate wastewater discharge.

• Value chain initiatives: Investing in training programs for upstream agricultural suppliers to adopt drip irrigation techniques.

• Efficiency and storage: Implementing water consumption reduction measures or upgrading storage infrastructure in water-scarce regions.

The ESRS defines actions as follows:

“Actions refer to:

i. actions and action plans (including transition plans) that are undertaken to ensure that the undertaking delivers against targets set and through which the undertaking seeks to address material impacts, risks and opportunities; and
ii. decisions to support these with financial, human or technological resources.

Actions can be individual actions, taken only by the undertaking, or collective actions, this is, collaborative efforts by a group of stakeholders - such as undertakings, governments, civil society, or communities - to address shared challenges or achieve common goals, particularly when those goals cannot be effectively achieved by any single actor working alone.”

3. ESRS E3-2 at a glance

E3-2 requires that the company disclose its water-related actions and the resources allocated to their implementation using the framework provided by ESRS 2 GDR-A.

However, ESRS E3 adds a very specific, strict topical requirement:

You shall explicitly specify which key actions and resources are related to areas with water stress. You cannot simply report a global summary of water initiatives; you must isolate and highlight what you are doing in the most vulnerable geographic locations.

To comply with ESRS E3-2, the disclosure must include:

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4. How E3-2 links to the rest of ESRS E3

E3-2 is the execution phase of your water strategy:

• E3-1 (Policy): Establishes the commitment to prioritize water efficiency in vulnerable regions.

• E3-2 (Action): The execution. Upgrading the cooling towers at the Spanish facility (an area with high water stress) at a cost of €500,000.

• E3-3 (Target): Sets the goal to reduce that specific site’s water withdrawal by 25% by 2028.

• E3-4 (Metric): Reports the actual cubic meters of water consumed, verifying whether the new cooling towers (E3-2) actually achieved the target (E3-3)

5. Bottom line

E3-2 is where companies must open their wallets to prove their commitments. To report effectively:

• Map actions to stress: Generic, company-wide water initiatives are good, but the standard specifically hunts for localized action. You must map your initiatives and spending directly to the river basins experiencing water stress.

• Follow the money: If your materiality assessment flags water as a highly material risk, but E3-2 shows zero CapEx or OpEx allocated to mitigate it, stakeholders and auditors will immediately notice the disconnect.

• Context is everything: Saving 10,000 cubic meters of water in a region with abundant rainfall is a minor efficiency win. Saving the exact same amount in a drought-stricken region is a critical risk mitigation effort. E3-2 requires you to highlight that context.

Relevant Standards

ESRS E3

ESRS E3

While targets and metrics measure the output of a company’s environmental impact, policies provide the governance framework that dictates how those results are meassured. ESRS E3-1 asks companies to describe the official rules, principles, and commitments they have established to manage their impact on water.

This disclosure serves as the foundation of the Water standard. It connects your high-level sustainability governance (ESRS 2) to the tangible actions (E3-2) and targets (E3-3) aimed at reducing your water footprint and managing water-related risks.

I will briefly explain the requirements for companies to disclose their policies in relation to water consumption, withdrawals, discharges, and water stored.

More elaborate articles are, or will become available, which can be found on: Sustainability Simplified.

2. What is a water policy?

A water policy is a framework that outlines how an undertaking manages its interactions with water systems. It addresses the sustainable sourcing, consumption, discharge, and storage of water across different sources (such as surface water, groundwater, seawater, produced water, and third-party water).

Context-specific considerations are incredibly important here, as water impacts are mostly local and tied to specific geographies.

Typical examples include:

• Water efficiency commitments: Strategies to reduce absolute water consumption or improve water recycling rates in manufacturing processes.

• Water stress management: Strict rules governing water withdrawal and discharge specifically tailored for operations located in highly water-stressed regions.

• Value chain guidelines: Supplier criteria requiring minimum water efficiency standards or zero-liquid discharge for water-intensive raw materials (like cotton or agriculture).

• Cross-standard interactions: While ESRS E3 focuses directly on water management (use, withdrawal, consumption, discharge, and storage), related impacts on marine ecosystems and resources interact with other topical standards such as ESRS E4 (Biodiversity and Ecosystems) and ESRS E5 (Resource Use and Circular Economy).

The ESRS 2 General Disclosures (GDR-P) provides the framing for this requirement. It states that the objective is to enable an understanding of the policies the company has in place to manage the prevention, mitigation, or remediation of material actual and potential negative impacts, as well as to manage material risks and pursue material opportunities or positive impacts. The ESRS defines a policy as follows:

“A set or framework of general objectives and management principles that the undertaking uses for decision-making. A policy implements the undertaking’s strategy or management decisions related to a material sustainability topic. Each policy is under the responsibility of defined person(s), specifies its perimeter of application, and includes one or more objectives (linked when applicable to measurable targets). A policy is validated and reviewed following the undertakings’ applicable governance rules. A policy is implemented through actions or action plans.”

3. ESRS E3-1 at a glance

E3-1 specifically requires that “the undertaking shall disclose its water-related policies in accordance with the provisions of ESRS 2 GDR-P”.

To comply with ESRS E3-1, the disclosure must include:

If a company has not adopted policies regarding water despite it being a material topic, it must explicitly disclose this fact.

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4. How E3-1 links to the rest of ESRS E3

• E3-1 (policies) sets the rules and strategic direction for water management.

• E3-2 (actions and resources) describes the key actions taken to implement those policies and the financial resources allocated to them.

• E3-3 (targets) defines the measurable goals the company aims to achieve.

• E3-4 (metrics) provides the data on for example actual water consumption, withdrawal, and discharges to track performance against the policy.

For example, a policy to minimize freshwater use in vulnerable regions (E3-1) would be implemented by investing in closed-loop cooling systems (E3-2), tracked against a target to reduce freshwater withdrawal by 30% by 2030 (E3-3), and reported via the absolute cubic meters of water consumed in areas with water stress (E3-4).

5. Bottom line

E3-1 is your opportunity to demonstrate that your organization’s approach to water is systematic and highly localized, rather than a generic global statement. To comply and communicate effectively:

• Define the scope clearly: Be highly specific about geography. A water policy is most effective if it specifically addresses operations and supply chains located in areas with high water stress.

• Address the full spectrum of water management: Ensure policies cover water quantity, quality, and accessibility, as well as consumption, withdrawal, and discharge.

• Link to frameworks: Where relevant, show how your policies align with frameworks, such as the EU Water Framework Directive.

A robust water policy is the starting point for credible reporting on how an undertaking respects and preserves local aquatic environments.

Relevant Standards

ESRS E3

ESRS E3

The ocean is often viewed as a vast, static body of water, but it is actually a dynamic and highly interconnected engine that regulates the Earth’s climate, supports global biodiversity, and underpins the international economy. From the wind-driven currents at the surface to the slow-moving “conveyor belt” in the abyssal depths, ocean circulation moves heat, carbon, and nutrients across the globe in a delicate balance.

However, as the planet warms, these fundamental systems are shifting. For businesses, ocean circulation is a material factor in supply chain resilience, regulatory compliance, and long-term strategic planning. Whether it is the Gulf Stream influencing European weather patterns or upwelling zones providing half of the world’s fish catch, the movement of the sea directly affects how companies operate, what they spend, and how they report their environmental impact.

In this article, you will learn:

✅The mechanics of movement: How wind, the Earth’s rotation, and water density drive surface and deep-ocean currents.

✅Vertical dynamics: The vital roles of upwelling and downwelling in supporting marine life and cooling the planet.

✅Business implications: Why shifts in these currents present physical, regulatory, and reputational risks to sectors ranging from shipping to finance.

✅The path forward: How frameworks like the LEAP approach help firms build resilience in a changing oceanic landscape.

By understanding the why and how of ocean circulation, you can better navigate the emerging risks and opportunities caused by ocean circulation.

This is a simplified view of how the ocean flows:

The ocean's movement is organized into two primary systems: surface circulation and deep-ocean circulation.

While they operate at different depths and speeds, they are inextricably linked by vertical movements—the rising and sinking of water—that connect the two into one global machine. To understand how this system functions, we will first examine the engine of the surface ocean.

2. Surface ocean circulation

The upper few hundred meters of the ocean are predominantly driven by global wind systems, such as the tropical easterlies and mid-latitude westerlies, combined with the Earth’s rotation. As wind blows across the ocean, it transfers momentum to the surface water via friction. However, because the Earth rotates, the Coriolis effect deflects these moving waters to the right in the Northern Hemisphere and to the left in the Southern Hemisphere.

The Coriolis effect is the “curve” that happens because the Earth is spinning while things are moving over it.

Imagine you are standing in the center of a spinning merry-go-round and you try to throw a ball straight to a friend standing on the outer edge.

• The curve: As the ball flies through the air, the merry-go-round keeps spinning. By the time the ball reaches the edge, your friend has moved. To you, it looks like the ball curved away from them, even though you threw it straight.

• Earth is the merry-go-round: Our planet is spinning just like that ride. Because different parts of the Earth move at different speeds (the equator spins much faster than the poles), anything traveling long distances, like wind or ocean water, gets left behind or pushed ahead.

• The result: Instead of moving in a straight line, the wind is forced to veer off course. This creates the massive circular swirls we see in hurricanes and ocean currents.

The simple rule to remember:

• Northern Hemisphere: Things curve to the right.

• Southern Hemisphere: Things curve to the left.

This deflection caused by the Coriolis effect creates a pattern known as the Ekman spiral, where each successive deeper layer of water moves slower and turns further away from the wind’s original direction. The net result of this spiraling motion is Ekman transport, which describes the overall movement of the upper water column at a 90-degree angle to the wind. So:

• The wind pushes the surface water.

• The Coriolis effect turns that surface water slightly.

• That top layer drags the layer beneath it, which turns even further and moves even slower.

• The final result is Ekman transport: the total volume of water ends up moving at a 90-degree angle to the direction the wind is blowing.

If you are interested, you can learn more about Ekman transport in this video:

Because the wind is pushing water at an angle, it eventually piles up in the middle of the ocean, creating hills of water up to two meters high.

Gravity tries to pull this water downhill, but the Coriolis effect keeps pushing it back toward the center. This tug-of-war creates a balanced, circular flow called a Subtropical Gyre (named for their location in the “subtropics” and their circular “gyrating” shape). There are five gyres:

The currents on the western side of the ocean are much stronger and warmer than those on the eastern side. Because the Earth rotates from West to East, it squashes the ocean’s hills of water against the western coastlines.

• On this western side (like the Gulf Stream near the US or the Kuroshio near Japan), the water is squeezed into a very tight space. Like water shooting out of a garden hose when you put your thumb over the end, the current becomes exceptionally fast, narrow, and deep. Because these currents move so quickly from the equator, they are carrying tropical heat thousands of miles toward the poles before the water has a chance to cool down.

• On the eastern side of the ocean (like near California or Africa), the water has plenty of room to spread out. This results in currents that are wide, shallow, and slow. These currents carry water from the cold poles back toward the equator. Because they move so slowly and are spread so thin, they don't have the energy of the western currents. Instead, they linger along the coast, keeping the nearby land much cooler and drier than it would be otherwise.

Takeaway
The upper ocean’s circulation is a sophisticated chain reaction: global winds transfer momentum to the surface, but the Coriolis effect deflects this movement, resulting in Ekman transport that moves water at a 90-degree angle to the wind. This process piles water into “hills,” forming massive circular gyres. Due to the Earth’s eastward rotation, these gyres are offset, creating Western Intensification—where western currents (like the Gulf Stream) become fast, narrow heat-conveyors, while eastern currents remain slow, shallow, and cool.

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3. Vertical movement of the ocean

This surface movement also drives vertical water motion. Diverging surface waters caused by Ekman transport lead to Ekman suction (upwelling), which draws cold, nutrient-rich deep water up to the surface. Conversely, where waters converge and pile up, Ekman pumping (downwelling) forces warm surface water down into the depths.

Ekman transport takes place within a relatively thin layer at the top of the ocean, typically extending only 100 to 150 meters deep. This is known as the Ekman layer. While Ekman transport itself is a horizontal process restricted to the Ekman layer (the top 100 to 150 meters of the ocean), it acts as a massive mechanical pump for the rest of the ocean. This surface movement drives vertical water motion.

On the left, ekman transport pushes the surface water toward the coast.

• Since the water hits the solid land and has nowhere else to go, it starts to pile up.

• This “hill” of water gets heavy, and gravity forces the warm surface water to sink downward. This carries oxygen and heat from the surface into the deeper parts of the ocean.

On the right, the Ekman transport is moving in the opposite direction, which pulls the surface water away from the coast.

• As the surface water moves out to sea, it leaves a “hole” or a gap behind. The fundamental principle of mass conservation drives this.

• To fill that space, cold, nutrient-rich water from the deep ocean is sucked upward to the surface. This is why places with upwelling (like the coast of California or Peru) have very cold water but are teeming with fish, the deep water brings up nutrients for marine life.

Why upwelling is very important:

• Deep ocean water is packed with nutrients. When upwelling pushes these to the sunlit surface, they act as a “super-fertilizer” for phytoplankton and macroalgae (seaweed).

• These plant blooms provide the primary energy source for the ocean. Without upwelling, we wouldn’t have the massive populations of fish, seabirds, and whales that thrive in these zones.

• Despite making up a tiny fraction of the ocean’s surface, upwelling zones provide nearly 40% of the world’s total fish catch, making them essential for the global economy and food supply.

• Upwelling helps cool the planet by bringing cold water to the surface and moving heat into the deep ocean. In places like the Southern Ocean, it fuels the growth of plants that absorb massive amounts of carbon dioxide.

• It can be a double-edged sword; in Antarctica, upwelling can sometimes bring slightly warmer deep water toward the coast, which may contribute to the melting of ice shelves from below.

Takeaway
Vertical water movement is driven by Ekman suction and pumping, which act as a mechanical pump for the deeper ocean. When Ekman transport pulls surface water away from a coastline or a central point, cold, nutrient-rich deep water rises to fill the gap—a process called upwelling that fuels 50% of the world’s fish catch and regulates global carbon levels. Conversely, when transport pushes water toward a coast or center, it piles up and sinks, creating downwelling that carries vital oxygen and heat into the deep ocean.

4. Deep ocean circulation

While the surface is driven by wind, the vast majority of the ocean’s volume is moved by density gradients in a process known as thermohaline circulation. Seawater density is governed by two factors: temperature (thermo) and salt content (haline).

In extreme polar regions, two things happen: intense cooling makes the water molecules contract and become more compact, and the formation of sea ice leaves salt behind in a process called “brine rejection.” This combination creates water that is exceptionally cold, salty, and heavy. Because it is much denser than the surrounding water, it sinks rapidly from the surface to the seafloor, serving as the primary engine driving the Global Conveyor Belt.

This sinking creates two primary deep-water masses that reach different depths:

• North Atlantic Deep Water (NADW): Formed in the subpolar North Atlantic (like the Labrador and Nordic seas), this water sinks and flows southward across the globe at depths typically ranging between 1,000 and 4,000 meters.

• Antarctic Bottom Water (AABW): Formed on the continental shelves of Antarctica, this is the densest water mass in the global ocean. It cascades down the continental slope to the abyssal plains, spreading northward beneath the NADW. AABW occupies the deepest parts of all major ocean basins, generally existing below 2,000 meters and routinely reaching extreme depths of 4,000 to 6,000 meters

This sinking motion drives the deep limb of the Meridional Overturning Circulation (MOC), a slow, global-scale circulation pattern that travels across ocean basins and takes approximately 1,000 years to complete a single circuit.

Closing the loop

To complete this massive, millennial-scale global circuit, the deep waters that sank at the poles must eventually rise back to the surface. As these deep waters slowly travel through the ocean basins, turbulent mixing gradually makes them less dense. The actual vertical return of this deep water to the surface occurs very slowly across the ocean basins and is heavily assisted by strong wind-driven upwelling in the Southern Ocean, which pulls these ancient, deep waters back up the water column.

Takeaway
The depths of the ocean are powered by thermohaline circulation, often called the Global Conveyor Belt, which is driven by differences in water density rather than wind. In polar regions, freezing sea ice leaves behind salt (brine rejection), creating water that is exceptionally cold, salty, and dense enough to sink to the abyssal floor. This sinking initiates the Meridional Overturning Circulation (MOC), a massive underwater circuit that takes roughly 1,000 years to complete, eventually returning to the surface through turbulent mixing and upwelling to redistribute heat and nutrients across the entire planet.

5. How ocean circulation affects companies

As climate change alters global ocean currents—disrupting thermal patterns and nutrient distribution—companies face mounting risks that impact their financial stability.

1. Physical risks to operations

Shifts in ocean movement directly threaten global logistics and the reliability of marine resources.

• Maritime shipping & Just-in-Time delivery: Vessels rely on predictable currents to reduce fuel burn. If currents become less predictable or intensify, ships must fight stronger head currents, increasing operational costs and GHG emissions. This disrupts Just-in-Time logistics, forcing companies to increase buffer times in their schedules, which ties up more capital in transit.

• Marine Renewable Energy: Offshore wind and tidal projects depend on stable coastal flows. Unpredictable shifts can reduce the efficiency of underwater turbines and increase maintenance costs for expensive offshore infrastructure.

• Commercial Fisheries: Ocean currents determine the location of nutrient-rich waters. Shifting patterns cause commercial fish stocks to migrate, forcing fleets to travel longer distances and threatening the seafood supply chain.

2. Regulatory & insurance risks

• Asset insurability: Ocean circulation affects sea-level rise and storm surges. As currents like the Gulf Stream shift, coastal flooding patterns change. This directly impacts the insurability of coastal assets—from real estate to ports—potentially leading to stranded assets or skyrocketing insurance premiums.

• Compliance: Increased oceanic volatility can lead to stricter international regulations. Companies may face green shipping mandates, sudden closures of traditional fishing grounds, or new penalties for agricultural runoff that creates coastal dead zones.

3. Reputational and social risks

Industries face intense scrutiny for their role in marine degradation. The creation of hypoxic dead zones—such as the 6,000-square-mile zone in the Gulf of Mexico—or emissions that threaten the AMOC conveyor belt can lead to divestment and loss of consumer trust.

6. Moving to a circular blue economy

To survive these shifts, firms are adopting a circular blue economy model that focuses on regenerating marine systems.

• Invest in blue carbon and ecosystem restoration: The deep ocean conveyor belt (thermohaline circulation) is highly vulnerable to global warming and the influx of freshwater from melting ice. To help stabilize the climate and protect this circulation, companies can invest in nature-based solutions and the blue economy. This includes funding the restoration of blue carbon ecosystems such as mangroves, seagrass meadows, and salt marshes. These marine habitats are among the most carbon-dense ecosystems on Earth, sequestering massive amounts of carbon dioxide while providing natural flood protection and improving local water quality.

• Adopt the LEAP framework for risk management: Corporations can systematically address their impacts on water and marine resources by utilizing the LEAP approach (Locate, Evaluate, Assess, Prepare) developed by the Taskforce on Nature-related Financial Disclosures (TNFD). This framework guides companies to map out exactly where their operations and supply chains intersect with sensitive water basins. Once these risks are identified, companies can apply the AR3T mitigation hierarchy, meaning they take structured action to Avoid, Reduce, Regenerate, Restore, and Transform their environmental footprint
  

Sources

Abrupt climate change and thermohaline circulation: Mechanisms and predictability - PMC

Introduction to Oceanography – Simple Book Publishing

The Ekman Spiral and Geostrophic Flow – Introduction to Oceanography

Ekman transport and pumping | Oceanography | Research Starters | EBSCO Research

Ocean Circulation and Climate: an Overview

Ocean currents | National Oceanic and Atmospheric Administration

OS - Antarctic Bottom Water and North Atlantic Deep Water in CMIP6 models

Effects of oceanographic environment on the distribution and migration of Pacific saury (Cololabis saira) during main fishing season - PMC

Why Climate Scientists Are Sounding the Alarm on the Ocean Circulation System AMOC - Union of Concerned Scientists

Zero Liquid Discharge and Water Reuse in Recirculating Cooling Towers at Power Facilities: Review and Case Study Analysis

Satellite-Based Analysis of Surface Upwelling in the Sea Adjacent to Zhoushan Islands in China

Influence of ocean winds on the pelagic ecosystem in upwelling regions | PNAS

The hydrological cycle, or water cycle, is a continuous, self-regulating process that governs the movement of water across the atmosphere, the Earth’s surface, and underground layers. Powered by solar radiation and regulated by gravity, it represents a massive, never-ending exchange of moisture that is intimately linked to the ocean and the global climate system.

By facilitating the constant flow of water between these domains, the cycle ensures the availability of freshwater—the lifeblood of terrestrial life and the majority of industrial processes. However, because the cycle is a loop, any disruption—from chemical pollution to the acceleration of evaporation due to rising temperatures—doesn’t just disappear. It propagates through every stage of the water cycle.

In this article you will learn:

✅ The mechanics of the water cycle

✅ How industrial extraction (from textiles to semiconductors) and land-use changes disrupt the water cycle

✅ The physical, regulatory, and reputational threats to companies posed by a shifting hydrological cycle

✅ Mitigation strategies, ranging from Zero Liquid Discharge (ZLD) technology to the LEAP risk framework.

By the end of this article, you will have a comprehensive understanding of the relationship between business and the water cycle, providing you with the insights needed to make water stewardship a pillar of your sustainability strategy.

1. The mechanics of the hydrological cycle

The hydrological cycle, commonly known as the water cycle, is the continuous movement of water across the Earth’s surface, atmosphere, and subsurface. Powered by solar radiation and regulated by gravity, it represents a massive, never-ending exchange of moisture that is intimately linked to the ocean and the global climate system.

The cycle consists of several core processes, or fluxes, that move water between different reservoirs (pools):

• Evaporation and transpiration: Evapotranspiration is the combined process of water moving from the Earth’s surface to the atmosphere. It consists of evaporation, in which solar energy provides the latent heat required to convert liquid water from oceans and lakes into vapor, and transpiration, in which plants release water vapor through leaf pores. While vegetation is a vital contributor to local humidity, the vast majority of global atmospheric moisture originates from evaporation over open water.

  

• Condensation: As water vapor rises into the atmosphere, it cools and transforms back into liquid water droplets or ice crystals, forming clouds.

• Precipitation: When these condensation particles grow too large to be supported by rising air, they fall back to the Earth as rain, snow, or hail.

• Runoff and infiltration: Precipitation that falls on land flows into surface bodies like rivers and lakes (runoff) or seeps into the soil to recharge groundwater aquifers (infiltration and percolation), eventually making its way back to the ocean

Because the cycle is a loop, any disruption—such as chemical pollution or significant changes in global temperature—doesn't just disappear. It propagates through every stage of the cycle, affecting everything from the purity of our drinking water to the intensity of global weather patterns.

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2. How companies affect the hydrological cycle

Industrial and agricultural activities disrupt the natural balance of the water cycle primarily through over-extraction, pollution, and land alteration.

Massive freshwater extraction and aquifer depletion

Industrial sectors pull staggering volumes of water from natural reservoirs, often far faster than precipitation can recharge them.

• Agriculture: Accounts for roughly 70% of global freshwater withdrawals. Inefficient methods like flood irrigation result in excess water evaporating or running off before it can be absorbed.

• Textiles and apparel: Consume lots of liters of water annually, with a single cotton t-shirt requiring around 2,700 liters to produce.

• Technology and semiconductors: Chip manufacturing relies on Ultrapure Water (UPW), requiring up to 38 million liters per day for a single fabrication plant. Globally, the semiconductor industry consumes approximately 210 trillion liters of water annually.

This aggressive extraction leads to the severe depletion of groundwater and underground aquifers, which can cause the land itself to sink (subsidence) and permanently lose its future water-storage capacity.

Severe pollution and water degradation

Corporations frequently discharge untreated or heavily contaminated water back into the environment, damaging the ecosystem’s ability to filter and clean water naturally.

• Agricultural runoff introduces millions of tons of nitrogen, phosphorus, and pesticides into waterways, sparking toxic algal blooms and massive hypoxic “dead zones” where aquatic life cannot survive.

• The textile dyeing process is responsible for an estimated 20% of global industrial water pollution, dumping heavy metals, synthetic dyes, and persistent toxic chemicals into rivers.

Land-use Changes

Corporate expansion often involves deforestation and paving over natural landscapes with impermeable materials like asphalt and concrete. This prevents precipitation from infiltrating the soil to recharge groundwater, instead forcing it to run off rapidly into rivers, exacerbating flash floods. Furthermore, large-scale deforestation reduces plant transpiration, which can literally dry out the atmosphere and alter rainfall patterns hundreds of kilometers downwind.

3. How the hydrological cycle affects companies (water risk)

As climate change accelerates the hydrological cycle—creating longer droughts and more intense, erratic rainfall—companies are increasingly exposed to severe water risks. This impacts their bottom line in three primary ways.

1. Physical risks to operations

When the water cycle shifts, it directly threatens the viability of supply chains and manufacturing.

• The tech sector: Around 40% of existing semiconductor facilities are located in basins projected to face high or extremely high water stress by 2030. During Taiwan’s historic 2021 drought, reservoirs dropped below 5% capacity, forcing the chip manufacturer TSMC to spend millions of dollars on fleets of water trucks just to keep their factories running.

• The energy sector: Thermoelectric and nuclear power plants rely on massive amounts of river water for cooling. As climate change causes river water levels to drop and water temperatures to rise, energy companies are forced to scale back or shut down power generation to avoid overheating the rivers and killing aquatic life.

• Agriculture: Rising temperatures increase evaporation rates, drying out soils and decimating crop yields, forcing farmers to bear the cost of expensive artificial irrigation or face total crop failure.

2. Regulatory risks

As physical water scarcity worsens, governments are forced to implement stricter regulations. Companies face sudden limitations on water allocations, drastically increased water tariffs, or revoked discharge permits.

3. Reputational and social risks

Water is a shared resource. When a corporation consumes vast amounts of local water during a drought, or pollutes a community’s drinking supply, they face intense public backlash, protests, and loss of consumer trust.

4. Corporate mitigation: Moving to a circular water economy

To survive the changing hydrological cycle, many companies are shifting from a linear take-make-dispose model to a circular economy model that prioritizes water reuse and ecosystem regeneration.

• Zero Liquid Discharge (ZLD): Advanced technological systems are being adopted to treat and purify industrial wastewater on-site. ZLD systems can recover up to 95% to 99% of liquid waste, allowing facilities to reuse the same water endlessly and eliminate their discharge of pollutants into the environment.

• Sustainable agriculture: Farms are transitioning to precision drip irrigation, which delivers water directly to plant roots, minimizing evaporation, and planting vegetative buffer zones to trap nutrient runoff before it reaches streams.

• Integrated water stewardship: Companies are utilizing risk assessment frameworks like the LEAP approach (Locate, Evaluate, Assess, Prepare) to map out exactly where their operations intersect with sensitive water basins, allowing them to implement nature-based solutions and reduce their vulnerability to a shifting climate.
  

A common failure in corporate sustainability is treating water risk as an isolated, site-specific issue. The reality is that freshwater and marine systems are deeply bound together by the global hydrological cycle.

Sources

Fast fashion: EU laws for sustainable textile consumption | Topics | European Parliament

Defining freshwater as a natural resource: A framework linking water use to the area of protection natural resources - PMC

Understanding the fashion water footprint - IDRA | The Global Desalination and Water Reuse Community

Freshwater Conservation & Sustainability | World Wildlife Fund

Water Nexus: Can Semiconductors and Sustainability Coexist in Taiwan? – Taiwan Insight

Case-study Water dependency of the tech sector

Nonpoint Source: Agriculture | US EPA

Extreme Heat Shuts Down Some Nuclear Reactors in Europe - The New York Times

Sources and Solutions: Agriculture | US EPA

Clothing Dye Runoff and its Environmental Impact

Textile finishing dyes and their impact on aquatic environs - PMC

Semiconductor industry faces water, sustainability challenges | Manufacturing Dive

Zero Liquid Discharge and Water Reuse in Recirculating Cooling Towers at Power Facilities: Review and Case Study Analysis

Water-related terms are often used interchangeably in policy, sustainability reporting, and corporate disclosures. But water scarcity, water stress, and water risk describe different concepts. Understanding the distinction matters, because each term points to a different problem and requires different solutions.

In this article, you’ll learn:

✅ What water scarcity, water stress, and water risk actually mean

✅ How these concepts differ, and why they are not interchangeable

✅ How they relate to each other

✅ Why complexity increases as you move from scarcity to stress to risk

By the end, you should be able to look at a water-related claim—whether in a report, a policy document, or the news—and quickly understand what kind of problem is being described, and what kind of response it calls for.

2. Water scarcity: when there is not enough water

Water scarcity describes a situation where there is physically too little freshwater available in a region.

It answers a simple question:
How much water exists here, regardless of how it is used?

Scarcity is mainly shaped by natural conditions, not management choices. Climate, geography, and hydrology determine how much water enters a system, how much evaporates, and how much can be stored in rivers, lakes, or aquifers.

Key features of water scarcity

• Focuses on absolute availability

• Usually long-term or structural

• Strongly influenced by:

  • Low rainfall

  • High evaporation

  • Arid or semi-arid climates

  • Limited or depleted groundwater

Because of this, water scarcity does not change quickly. Even excellent water management cannot easily overcome a fundamentally water-poor environment.

Example
A desert basin with little rainfall and slow groundwater recharge is water-scarce, even if demand is relatively low.

In short:
Water scarcity = not enough water exists.

3. Water stress: when demand overwhelms the system

Water stress describes the pressure placed on water resources when demand approaches or exceeds what the system can reliably provide, or when water quality limits its use.

It answers a different question:
Is the water system under strain from use, competition, or pollution?

Unlike scarcity, water stress is strongly influenced by human activity and can vary over time.

Common drivers of water stress

• Agricultural irrigation

• Rapid urban growth

• Industrial withdrawals

• Groundwater over-extraction

• Pollution reducing usable water

• Seasonal peaks in demand

Water stress often appears seasonally, for example during dry months when withdrawals peak but river flows are low. Over time, repeated stress can become chronic.

Example
A river still flows year-round, but heavy irrigation and urban withdrawals leave too little water for downstream users or ecosystems during the dry season.

In short:
Water stress = water exists, but we are pushing the system too hard.

4. Water risk: when water problems cause real harm

Water scarcity and water stress describe conditions.
Water risk describes the consequences of those conditions.

Water risk refers to the likelihood and severity of negative impacts caused by water scarcity, stress, or mismanagement. It asks:

What could go wrong because of water, and how serious would the impact be?

Main types of water risk

• Physical risks
  Droughts, shortages, floods, declining groundwater, poor water quality

• Regulatory risks
  Abstraction limits, stricter permits, higher water prices

• Reputational risks
  Conflict with communities, NGO pressure, loss of social licence

Risk is context-specific. Two facilities in the same basin may face very different risks depending on their water dependence, efficiency, governance, and relationships with local stakeholders.

In short:
Water risk = the real-world consequences of water problems.

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5. How these concepts fit together

These terms are not interchangeable. They describe different layers of the same system:

• Water scarcity defines the physical baseline

• Water stress describes pressure on that baseline

• Water risk captures the impacts when pressure meets exposure

This explains why different combinations are possible:

• A region can be water-scarce but not water-stressed if demand is low

• A region can be water-stressed without being truly scarce if demand or pollution overwhelms supply

• Risk only emerges when scarcity or stress affects people, ecosystems, or operations

6. From scarcity to risk: increasing complexity

As you move from water scarcity to water stress and finally to water risk, the problem becomes progressively more complex.

Each concept adds new layers to the analysis.

• Water scarcity is relatively simple.
  It is primarily a physical condition. How much water is available depends largely on climate, geography, and hydrology. Scarcity can often be described using a small number of biophysical variables.

• Water stress is more complex.
  It still depends on physical availability, but it also reflects human behaviour: how water is withdrawn, when demand peaks, how pollution affects usability, and how different users compete for the same resource. Seasonal patterns, infrastructure, and management choices start to matter.

• Water risk is the most complex.
  It goes beyond the water system itself and includes economic, regulatory, social, and reputational dimensions. Risk depends not only on basin conditions, but also on who is exposed, how dependent they are on water, and how well they can respond.

In other words, each step adds new sources of uncertainty:

• From natural variability (scarcity),

• To human pressure and competition (stress),

• To impacts, decisions, and consequences (risk).

This is why water risk assessments are inherently more difficult than scarcity or stress assessments—and why they require more judgement, context, and interpretation.

7. Related terms you may encounter

A few additional terms often appear in discussions of water stress and scarcity:

• Baseline water stress
  A measure of total water withdrawals relative to renewable supply

• Water depletion
  Focuses on water that is consumed and not returned to the system

• Blue water and green water

  • Blue water: rivers, lakes, aquifers

  • Green water: soil moisture used by plants

• Environmental flow requirements
  Minimum water needed to sustain river ecosystems

8. The takeaway

Scarcity tells us whether water exists.
Stress tells us whether we are overusing it.
Risk tells us what happens when that overuse has consequences.

Confusing these concepts leads to poor decisions, weak disclosures, and ineffective water strategies. Getting them right enables clearer analysis, better prioritisation, and more credible water stewardship.

Relevant Sources

Clarify Water Stress, Water Scarcity, and Water Risk - WRI, Aqueduct

The New Blue and Green Water Paradigm: Breaking New Ground for Water Resources Planning and Management

The measurement of water scarcity: Defining a meaningful indicator - PMC (WSI)

Water depletion: An improved metric for incorporating seasonal and dry-year water scarcity into water risk assessmentsWater depletion: Improved metric for seasonal and dry-year water scarcity | Elementa: Science of the Anthropocene | University of California Press

Quantifying renewable groundwater stress with GRACE - Richey - 2015 - Water Resources Research - Wiley Online Library

Chapter 4: Water | Climate Change 2022: Impacts, Adaptation and Vulnerability

Aqueduct Global Maps 2.0 | Working Paper | World Resources Institute

As global water stress intensifies, businesses can no longer afford to treat water as an unlimited resource. Whether it's textile dyeing in drought-prone basins or semiconductor fabs dependent on ultrapure water, supply chains are increasingly vulnerable to water-related disruption.

Water risk, in this context, refers not just to scarcity, but also to water quality, community conflict, and regulatory exposure. The LEAP approach is a 4-phase framework for identifying nature-related risks and opportunities.

What you’ll learn in this article:

✅ What the LEAP approach is

✅ Applying LEAP in a corporate supply chain context

✅ Benefits and challenges of applying LEAP

By the end of this article, you’ll understand how to apply the LEAP methodology to build water resilience into your sustainability strategy.

2. Understanding the LEAP approach

The LEAP framework stands for:

1. Locate: Identify geographies in your value chain that interface with water

2. Evaluate: Assess water-related dependencies and impacts in those areas

3. Assess: Determine which risks and opportunities are material

4. Prepare: Develop actions, targets, and disclosures

Originally developed by the Taskforce on Nature-related Financial Disclosures (TNFD), LEAP is a recommended method to structure your materiality assessment and reporting process for water and marine resources.

Each LEAP phase maps directly to ESRS expectations: the first three support the double materiality assessment, while the fourth focuses on due diligence, policies, and reporting.

3. Applying LEAP in a corporate supply chain context

1. Locate: Where do water risks exist?

Start by creating a map of all your company’s facilities, as well as key suppliers throughout your value chain. This includes not only where your factories or offices are located, but also where your suppliers extract raw materials, produce goods, or manage logistics. Once you have this map, the next step is to overlay it with publicly available water risk data. Recommended tools include:

• WRI Aqueduct Water Risk Atlas

• WWF Water Risk Filter

• GIS tools to overlay supplier data on water risk basins

According to ESRS E3, companies should identify whether their operations or suppliers are located in:

• Areas of high water stress – These are regions where 40% to 80% of the available water is already being withdrawn for human use (e.g., agriculture, industry, households). In such areas, adding more water demand, like expanding a production line or sourcing from a new supplier, can quickly become unsustainable or trigger conflict.

• Areas of extremely high water stress – In these zones, more than 80% of the available renewable water supply is already being used. This leaves very little buffer for seasonal changes, population growth, or droughts. Even small shifts in rainfall or usage can cause major shortages, affecting operations, communities, and ecosystems.

• Broader “areas at water risk” – These include locations where water-related problems might not be about scarcity, but rather:

  • Water quality degradation (e.g., heavy metals, pesticides, microplastics)

  • Poor accessibility (e.g., rural areas without reliable infrastructure)

  • Weak governance (e.g., lack of water management, corruption, unclear water rights)

  • Conflict with local communities (e.g., when companies’ water use reduces what’s available for households or agriculture)

Identifying these zones early helps prioritize where action is needed most, and where risks to your business and stakeholders are likely to be material under ESRS.

For example, an apparel brand might find its dyeing suppliers concentrated in Bangladesh and northern India, regions categorized as “extremely high” stress basins. Similarly, a semiconductor company with fabs in Arizona or Taiwan will find itself operating in drought-prone zones.

2. Evaluate: How does your company rely on and affect water?

Once you’ve identified where your company and suppliers operate in relation to water-stressed areas, the next step is to understand how your business depends on and affects water in those locations.

You’ll want to assess two key things:

This evaluation should include both:

• Direct operations (e.g., water used at your own facilities)

• Upstream supply chain (e.g., water used by suppliers growing crops, mining materials, or processing chemicals)

To gather this information, companies can use: internal data (e.g., utility bills, production logs), supplier questionnaires, such as those from CDP (Carbon Disclosure Project), stakeholder engagement, particularly with communities or regulators near key sites.

Importantly, you should also consider any positive contributions your company may be making, such as investing in water treatment or reuse systems, participating in watershed restoration projects, supporting community access to clean water.

Example:
A food & beverage company sourcing sugarcane from northern India may uncover:

• A high dependency on irrigation in drought-prone areas

• A significant impact through aquifer depletion and fertilizer runoff

3. Assess: What’s materially significant?

After evaluating how your company and suppliers rely on water, and how they might affect it, the next step is to decide which issues are material. This means identifying the water-related risks, impacts, or opportunities that are significant enough to influence your decisions, sustainability reporting, or stakeholder relationships.

Four types of issues to look for:

• Physical risks: such as water shortages, flooding, or contamination that could disrupt operations.

• Transition risks: like changing water regulations, reputational damage, or rising costs linked to water use.

• Systemic risks: for example, the long-term collapse of an aquifer or the degradation of entire ecosystems.

• Opportunities: including improved efficiency, lower operating costs, or stronger relationships with regulators and communities.

To determine if something is material, you should consider:

• How severe the impact could be, on people, ecosystems, or your operations

• How likely it is to happen

• What the financial consequences might be (e.g., supply chain disruption, fines, or cleanup costs)

• Whether stakeholders, such as local communities, investors, or NGOs, are raising concerns

Read more about materiality here:

Real-world examples help illustrate the stakes. In the apparel industry, research from Planet Tracker found that many suppliers operate in regions where more than 80% of water is already withdrawn. In those “extremely high stress” areas, there’s little room for growth, and a high risk of disruption or backlash.

In the tech sector, Taiwan’s 2021 drought forced semiconductor companies to truck in emergency water supplies. One company spent more than €20 million just to maintain production, proving how fast physical water risk can turn into a financial problem.

4. Prepare: What actions and disclosures are required?

If water is determined to be material (as it often will be), companies must respond with appropriate:

• Policies (ESRS E3-1): Covering water sourcing, use, pollution prevention, and product design

• Actions and resources (E3-2): Including investments in water recycling, supplier engagement, or basin restoration (page 139: P1: Strategy and resource allocation plans)

• Targets (E3-3): With baselines, timeframes, and alignment to ecological thresholds (page 143: 7.5. P2: Target setting and performance management)

• Metrics (E3-4): Tracking water consumption, recycling, and intensity (e.g., m³ per € revenue) (page 130: 6.7.2. Metrics for nature-related risks and opportunities)

• Financial effects: Anticipated short-, medium-, and long-term impacts or benefits (page 125: 6.7.1. Financial effects of nature-related risks and opportunities)

Tip: Companies can align targets with ecological thresholds, the amount of water ecosystems can sustain. Read more about ecological thresholds here:

4. Benefits and challenges of applying LEAP

Applying the LEAP method to identify water risks in your supply chain has clear advantages, but it also comes with a few hurdles to keep in mind.

Benefits
LEAP helps companies build a more complete and reliable view of how water affects their business:

• It gives you a holistic view of water risks across your entire value chain and not just in your own operations. So, also in supplier regions where risks might be hidden.

• It offers a structured way to align with ESRS E3.

• It improves preparedness for disruptions like droughts, floods, or local conflicts over water, helping avoid costly surprises.

Challenges
That said, using LEAP effectively does take work:

• Data can be hard to get, especially from suppliers in regions with limited monitoring or reporting systems.

• It can be difficult to define what’s material when weighing both financial impacts and ecological damage. Not all risks are easy to quantify.

• Setting meaningful water targets often requires detailed, basin-level data, which may not be available or easy to interpret without local expertise.

5. What’s next?

The LEAP approach offers a clear and actionable pathway to managing water-related risks in business. It helps with identifying where water matters most and evaluating dependencies and impacts. More importantly, LEAP transforms water from an operational blind spot into a strategic asset.

Now that you know the basics about LEAP you can start and have a look at the full guidance here:
Guidance on the identification and assessment of nature-related issues: the LEAP approach – TNFD

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Relevant Sources

Guidance on the identification and assessment of nature-related issues: the LEAP approach – TNFD

Research from Planet Tracker

Research from Reuters

The water challenge for semiconductor manufacturing – data on chip industry water use and investor concerns

Relevant Standards

ESRS E3