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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Do you want to learn more about LEAP? Tell me what via a comment:

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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

In today's business environment, companies must not only focus on their current financial health but also anticipate how environmental factors like water and marine resource risks might impact their future financial performance. Companies need to disclose the anticipated financial effects of these environmental risks and opportunities. This article will simplify these complex requirements, helping you understand what companies need to report.

How companies can effectively disclose this information will be covered in another article.

2. Anticipated Financial Effects from Material Water and Marine Resources-Related Risks and Opportunities

Companies are required to disclose how risks and opportunities related to water and marine resources might impact their finances in the future. This includes:

1. Quantifying financial effects: Companies should estimate the potential financial impacts of water and marine resource-related risks and opportunities. Financial impacts include the financial position, financial performance and cash flows, over the short-, medium- and long-term. If it's too difficult or costly to provide exact figures, they can offer qualitative information instead.

2. Describing the impacts: They need to describe the specific risks and opportunities, such as how their operations depend on water availability or are affected by marine resource depletion. This description should also include when these impacts are expected to occur, whether in the short, medium, or long term.

3. Critical assumptions and uncertainties: Companies must outline the key assumptions they used to make these financial projections and discuss the uncertainties involved. This helps provide a clearer picture of the reliability of their estimates.

This disclosure goes beyond just reporting current financial data, offering insights into how future water and marine resource challenges could influence a company’s financial stability.

Companies must estimate and disclose how risks and opportunities related to water and marine resources could impact their future financial performance. This includes providing financial projections, describing potential impacts, and outlining the assumptions and uncertainties involved.

3. Conclusion

By disclosing the anticipated financial effects of water and marine resource-related risks and opportunities, companies can better prepare for the future and offer transparency to stakeholders. This proactive approach helps businesses understand the potential financial impacts of environmental factors and allows them to make informed decisions that align with long-term sustainability goals.

In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.

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Relevant Standards

ESRS E3

Disclosure Requirement E3-5 – Anticipated financial effects from material water and marine resources-related risks and opportunities

30. The undertaking shall disclose the anticipated financial effects of material water and marine resources-related risks and opportunities.

31. The information required by paragraph 30 is in addition to the information on current financial effects on the entity’s financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d).

32. The objective of this Disclosure Requirement is to provide an understanding of:
(a) anticipated financial effects due to material risks arising from water and marine resources-related impacts and dependencies and how these risks have (or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance and cash flows, over the short-, medium- and long-term; and
(b) anticipated financial effects due to material opportunities related to water and marine resources.

33. The disclosure shall include:
(a) a quantification of the anticipated financial effects in monetary terms before considering water and marine resources-related actions or where not possible without undue cost or effort, qualitative information. For financial effects arising from opportunities, a quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);
(b) a description of the effects considered, the impacts and dependencies to which they relate, and the time horizons in which they are likely to materialise; and
(c) the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty of those assumptions.

Understanding how much water a company uses is crucial for managing its environmental impact, especially in areas where water is scarce. Companies need to be transparent about their water consumption, including details on how they use, recycle, and store water. This article will break down these disclosure requirements to help you understand what companies need to report.

How companies can effectively disclose this information will be covered in another article.

2. Water Consumption

Companies must disclose detailed information about their water usage. When talking about water, you might encounter the terms water use, withdrawal and consumption. This illustration explains these terms:

Here's what companies need to report:

1. Total water consumption: Companies must provide the total amount of water they consume, measured in cubic meters (m³).

2. Water consumption in high-risk areas: They must also disclose how much of this water is used in areas that are at risk of water scarcity or high-water stress.

3. Water recycling and reuse: Companies should report the total amount of water they recycle and reuse, which helps reduce their overall water consumption.

4. Water storage: Information on how much water is stored and any changes in storage levels must be provided.

5. Contextual information: Companies need to give context for these figures, such as the quality and quantity of the water in the basins they use, how the data was collected (whether it was measured directly or estimated), and any standards or methods they followed.

Additionally, companies must report their water intensity, which is the total water consumed per million euros of net revenue. This metric helps to understand how efficiently a company uses water relative to its financial performance.

Companies must report detailed information about their water use, including total consumption, usage in high-risk areas, and amounts recycled or stored. They also need to disclose water intensity, showing how efficiently they use water relative to their revenue.

3. Conclusion

By disclosing their water consumption, companies provide valuable insights into their environmental impact and how they are managing resources in both low-risk and high-risk areas. This transparency not only helps track their progress toward sustainability goals but also allows stakeholders to hold them accountable for their water use. Understanding these figures is key to ensuring that businesses contribute positively to the sustainable management of water resources.

In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.

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Relevant Standards

ESRS E3

Disclosure Requirement E3-4 – Water consumption

26. The undertaking shall disclose information on its water consumption performance related to its material impacts, risks and opportunities.

27. The objective of this Disclosure Requirement is to provide an understanding of the undertaking’s water consumption and any progress by the undertaking in relation to its targets.

28. The disclosure required by paragraph 26 relates to own operations and shall include:
(a) total water consumption in m3;
(b) total water consumption in m3 in areas at water risk, including areas of high-water stress;
(c) total water recycled and reused in m3;
(d) total water stored and changes in storage in m3; and
(e) any contextual information necessary regarding points (a) to (d), including the water basins’ water quality and quantity, how the data have been compiled, such as any standards, methodologies, and assumptions used, including whether the information is calculated, estimated, modelled, or sourced from direct measurements, and the approach taken for this, such as the use of any sector-specific factors.

29. The undertaking shall provide information on its water intensity: total water consumption in its own operations in m3 per million EUR net revenue.

In today's world, businesses need to be transparent about how they manage their impact on water and marine resources. This includes setting clear targets to ensure they are making progress in reducing their environmental footprint. The European Sustainability Reporting Standards (ESRS) require companies to disclose these targets to demonstrate their commitment to sustainability. In this article, we’ll break down what these targets should cover.

How companies can effectively disclose this information will be covered in another article.

2. Targets

Targets are specific goals or objectives that an organization sets to achieve within a certain timeframe. These targets help guide the organization’s efforts and measure its progress. For example, a company might set a target to reduce its water consumption by 30% over the next couple of years.

Companies are required to disclose the specific targets they have set related to water and marine resources. These targets help track the effectiveness of their policies and actions in managing environmental impacts:

1. Impact and risk management: Companies should set targets that address the management of significant impacts and risks in areas where water is at risk, including efforts to improve water quality.

2. Marine resource management: Targets should also cover the responsible use of marine resources, detailing the types and amounts of materials like seafood or deep-sea minerals the company uses.

3. Water consumption reduction: Reducing water use is a key target, especially in areas where water is scarce. Companies need to explain how their targets relate to these high-risk areas.

When setting these targets, companies might consider ecological thresholds—limits within which ecosystems can function sustainably. If they do, they should explain the methods used to determine these thresholds and how responsibility for meeting them is assigned within the company. Additionally, companies need to specify whether their targets are mandatory, based on legislation, or voluntary.

Companies must set and disclose specific targets for managing their impacts on water and marine resources, including reducing water consumption and responsibly using marine resources. These targets should address high-risk areas and may consider ecological limits, with companies clarifying whether the targets are mandatory or voluntary.

3. Conclusion

Setting and disclosing clear targets for managing water and marine resources is important for companies aiming to reduce their environmental impact. By being transparent about these targets, companies not only comply with regulations but also show their commitment to sustainability.

In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.

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Relevant Standards

ESRS E2

Disclosure Requirement E3-3 – Targets related to water and marine resources

20. The undertaking shall disclose the water and marine resources-related targets it has set.

21. The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has adopted to support its water and marine resources-related policies and address its material water and marine resources-related impacts, risks and opportunities.

22. The description of the targets shall contain the information requirements defined in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.

23. The disclosure required by paragraph 20 shall indicate whether and how its targets relate to:
(a) the management of material impacts, risks and opportunities related to areas at water risk, including improvement of the water quality;
(b) the responsible management of marine resources impacts, risks and opportunities including the nature and quantity of marine resources-related commodities (such as gravels, deep-sea minerals, seafood) used by the undertaking; and
(c) the reduction of water consumption, including an explanation of how those targets relate to areas at water risk, including areas of high water-stress.

24. In addition to ESRS 2 MDR-T, the undertaking may specify whether ecological thresholds and entity-specific allocations were taken into consideration when setting targets. If so, the undertaking may specify:
(a) the ecological thresholds identified, and the methodology used to identify such thresholds;
(b) whether or not the thresholds are entity-specific and if so, how they were determined; and
(c) how responsibility for respecting identified ecological thresholds is allocated in the undertaking.

25. The undertaking shall specify as part of the contextual information, whether the targets it has set and presented are mandatory (required by legislation) or voluntary.

While governance and strategy are not part of ESRS E3, Impact Risk, and Opportunity management is. Companies must be more transparent and responsible about how they impact water and marine resources. This involves not just managing risks but also taking advantage of opportunities to improve their environmental footprint. Companies need to disclose their policies, actions, and processes related to water and marine resources. In this article, we'll break down these requirements and explain what companies need to disclose. How companies can effectively disclose this information will be covered in another article.

2. Impact, Risk, and Opportunity Management

Impact, Risk, and Opportunity (IRO) are important elements in the ESRS:

• Impact: This refers to the effects that a company's actions have on the environment, society, and the economy. Impacts can be positive (beneficial) or negative (harmful).

• Risk: Risks are potential events or conditions that could cause harm or loss to a company. These can stem from various sources, including financial, operational, environmental, or social factors.

• Opportunity: Opportunities are potential favorable circumstances or conditions that a company can exploit to its advantage. They can lead to growth, innovation, and a competitive edge.

Identifying and Assessing Impacts, Risks, and Opportunities

Companies are required to describe their processes for identifying and assessing significant impacts, risks, and opportunities related to water and marine resources. This includes:

1. Screening assets and activities: Companies must explain whether and how they evaluate their operations and supply chains to identify actual and potential impacts on water and marine resources. This involves detailing the methods, assumptions, and tools they use for this screening process.

2. Consulting affected communities: Companies should also disclose whether and how they consult with communities that might be affected by their water and marine resource activities. This consultation helps ensure that all potential impacts are considered and addressed.

Policies Related to Water and Marine Resources

Companies need to describe the policies they have adopted to manage their significant impacts, risks, and opportunities related to water and marine resources. Key elements of these policies should include:

1. Water management: Policies should cover the use and sourcing of water, water treatment, and measures to prevent and reduce water pollution.

2. Product and service design: Companies should design their products and services to address water-related issues and preserve marine resources.

3. Commitment to reduce water consumption: Especially in areas facing water scarcity, companies should commit to reducing their water usage both in their operations and throughout their supply chains.

If a company operates in a high-water-stress area and lacks a relevant policy, it must state this and explain why. Additionally, companies should disclose if they have adopted policies related to sustainable oceans and seas.

Actions and Resources

To achieve their water and marine resource-related targets, companies must also disclose the specific actions they take and the resources they allocate. This includes:

1. Avoiding use: Measures to avoid using water and marine resources where possible.

2. Reducing use: Efficiency measures to reduce water usage.

3. Reclaiming and reusing water: Actions to reclaim and reuse water.

4. Restoration and regeneration: Efforts to restore and regenerate aquatic ecosystems and water bodies.

For areas at high risk of water scarcity, companies must specify the actions and resources dedicated to mitigating these risks.

Companies must identify and assess significant impacts, risks, and opportunities related to water and marine resources by screening their operations and consulting affected communities. They should also disclose their policies and actions to manage these impacts.

3. Conclusion

Understanding and managing the impacts, risks, and opportunities related to water and marine resources are critical for sustainable business operations. By following the ESRS guidelines, companies can ensure they are transparent about their efforts and are actively contributing to the preservation and sustainable use of these vital resources.

In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.

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Relevant Standards

ESRS E2

Disclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material water and marine resources-related impacts, risks and opportunities

8. The undertaking shall describe the process to identify material impacts, risks and opportunities and shall provide information on:
(a) whether and how the undertaking it has screened its assets and activities in order to identify its actual and potential water and marine resources-related impacts, risks and opportunities in its own operations and its upstream and downstream value chain, and if so the methodologies, assumptions and tools used in the screening;
(b) whether and how it has conducted consultations, in particular, with affected communities

Disclosure Requirement E3-1 – Policies related to water and marine resources

9. The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to water and marine resources.

10. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material water and marine resources-related impacts, risks and opportunities.

11. The disclosure required by paragraph 9 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to water and marine resources in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.

12. The undertaking shall indicate whether and how its policies address the following matters where material:
(a) water management including: i. the use and sourcing of water and marine resources in its own operations; ii. water treatment as a step towards more sustainable sourcing of water; and iii. the prevention and abatement of water pollution resulting from its activities.
(b) product and service design in view of addressing water-related issues and the preservation of marine resources; and
(c) commitment to reduce material water consumption in areas at water risk in its own operations and along the upstream and downstream value chain.

13. If at least one of the sites of the undertaking is located in an area of high-water stress and it is not covered by a policy, the undertaking shall state this to be the case and provide reasons for not having adopted such a policy. The undertaking may disclose a timeframe in which it aims to adopt such a policy.

14. The undertaking shall specify whether it has adopted policies or practices related to sustainable oceans and seas.

Disclosure Requirement E3-2 – Actions and resources related to water and marine resources

15. The undertaking shall disclose its water and marine resources-related actions and the resources allocated to their implementation.

16. The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned to achieve the water and marine resources-related policy objectives and targets.

17. The description of the actions and resources shall follow the principles defined in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters. In addition to ESRS 2 MDR-A, the undertaking may specify to which layer in the mitigation hierarchy an action and

18. Resources can be allocated to:
(a) avoid the use of water and marine resources;
(b) reduce the use of water and marine resources such as through efficiency measures;(c) reclaiming and reuse of water; or
(d) restoration and regeneration of aquatic ecosystem and water bodies.

19. The undertaking shall specify actions and resources in relation to areas at water risk, including areas of high-water stress.

ESRS 2

Disclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material impacts, risks and opportunities

6. When describing the process to identify material impacts, risks and opportunities in relation to business conduct matters, the undertaking shall disclose all relevant criteria used in the process, including location,activity, sector and the structure of the transaction.

Water and marine resources play a critical role in sustaining life on Earth, providing essential support to ecosystems and human societies. ESRS E3 delves into the complex relationship between companies and water and marine resources, aiming to guide organizations in transparently reporting their impacts and contributions in relation to this topic.

Reporting about water and marine resources is important for a number of reasons. First, it helps to raise awareness of the problem and its impact on society and the environment. Second, it allows stakeholders to assess companies' environmental performance and hold them accountable for their water management. Third, it can help to drive innovation and investment in clean technologies and solutions.

The article is structured as follows:

1. Introduction

2. What are water and marine resources?

3. Table of Definitions and Acronyms

4. Objective of ESRS E3

5. Governance & Strategy

6. Impact, Risk, and Opportunity Management

7. Metrics and Targets

8. Conclusion

After reading this article you will have a better understanding of ESRS E3 and how it affects companies.

2. What are water and marine resources?

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. With regard to climate change, oceans act as a large carbon sink by 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. To keep this balance, it is important to preserve and restore water and marine resources.

3. Table of Definitions and Acronyms

When talking about ESRS E3 and water and marine resources you will encounter multiple definitions and acronyms. Below is a table that presents these definitions and acronyms.

4. Objective of ESRS E3

So, what is ESRS E3 all about? Let's dig into its objectives, which revolve around water and marine resources:

1. Water and Marine Resources Impact: Understand how a company affects marine resources, outlining both positive and negative actual or potential effects.

2. Water and Marine Resources Actions: Detail actions taken and their outcomes to prevent, mitigate, or remediate significant negative impacts on water and marine resources.

3. Adapting for a Greener Future (1): Examine the company's contribution to the European Green Deal's goals for clean air, water, soil, biodiversity, and the sustainability of the blue economy and fisheries sectors.

4. Adapting for a Greener Future (2): Explore the plans and capacity of the company to align its strategy and business model with the preservation of fresh water, protection of aquatic ecosystems, and the sustainable use of marine resources.

5. Water and Marine Resources Risks and Opportunities: Analyze the material risks and opportunities related to the company's impacts and dependencies on water and marine resources, along with management strategies.

6. Financial Effects: Assess the financial effects on companies in the short, medium, and long term resulting from risks and opportunities related to water and marine resources.

Based on the materiality of the water and marine resources related topics, these objectives may require companies to disclose information related to governance, strategy, impacts, risks, opportunities, metrics, and targets, as we'll explore in more detail in the following sections.

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5. Governance & Strategy

In the context of ESRS E3, governance and strategy refer to the way companies manage their efforts to address water and marine resources. Although ESRS E3 doesn't provide detailed disclosure requirements (DRs) for governance and strategy, ESRS 1 Section 1.4 indicates that companies might need to share information about how they handle these aspects if it's deemed that their impacts, risks, and opportunities (IRO) related to the environment and sustainability are material. This means that even when the standard (ESRS E3) doesn't specify the need for governance and strategy disclosures, companies could still be required to provide relevant information tailored to their unique circumstances if topics related to water and marine resources are material in their environmental and sustainability reporting.

Although specific disclosure requirements aren't outlined in ESRS E3, companies may still need to share information if water and marine resources-related topics are material

6. Impact, Risk and Opportunity Management

This section is about the impacts, risks, and opportunities (IRO) related to pollution and is subdivided into three sections.

6.1. Identifying Water and Marine Resources-Related IRO

Companies must outline their process for identifying significant IRO related to water and marine resources. This includes screening site locations and business activities to assess water and marine resources-related impacts, risks, and opportunities. Consultations with affected communities should also be described.

6.2. Policies for Managing Material IRO

Companies are required to disclose their policies adopted to manage material impacts, risks and opportunities related to water and marine resources. This includes addressing areas such as water management including use and sourcing of water and marine resources, water treatment as a step towards more sustainable sourcing of water as well as the prevention and abatement of water pollution resulting from its activities. The policies should also address product and service design in relation to addressing water-related issues and preservation of marine resources. Finally, the policies should include a commitment to reduce material water consumption in areas at water risk in its own operations and along the upstream and downstream value chain.

6.3. Water and Marine Resources-Related Actions and Resource Allocation

Companies should be disclosing actions and resources dedicated to water and marine resource management, providing insights into past and planned initiatives. Moreover, it should be specified whether resources are geared towards avoiding, reducing, reclaiming, reusing, restoring, or regenerating aquatic ecosystems. Lastly, companies should provide insights into actions and resources addressing areas at water risk, especially those facing high-water stress.

This section of ESRS E3 focuses on IRO related to water and marine resources. It includes three key parts: identifying water and marine resources-related IRO, disclosing policies for managing these material IRO, and sharing details about water and marine resources-related actions and resource allocation.

7. Metrics and Targets

ESRS E3 contains less metrics and targets than ESRS E1. The metrics and targets in ESRS E3 focus on water and marine resources-related aspects and are presented in four sections.

7.1. Water and Marine Resources-Related Targets

Companies should disclose specific targets related to water and marine resources, offering insights into their alignment with policies and efforts to address material IRO. Moreover, detailed information should be provided, specifying their connection to managing IRO in areas facing water risk, responsible marine resources management, and the reduction of water consumption, especially in high-water stress areas.

7.2. Water Consumption

As a company you should disclose information on water consumption generated from operations, including total water consumption, water consumption in areas of water risk, total water recycled and reused, total water stored and changes in storage. Provide contextual information on water basins' water quality and quantity, measurement methodologies, assumptions, and the approach to data collection. Finally, disclose water intensity and total water consumption per million EUR net revenue in your own operations.

7.3. Anticipated Financial Effects

Companies need to disclose the anticipated financial effects resulting from material risks and opportunities linked to water and marine resources-related impacts. This includes quantifying anticipated financial effects, providing descriptions of considered effects, related impacts, and likely time horizons. Critical assumptions used in estimates should be clarified and the sources and levels of uncertainty associated with these assumptions should be addressed.

This part of ESRS E3 introduces water and marine resources-related metrics and targets in three sections, emphasizing the disclosure of specific targets, water consumption, and the anticipated financial impacts related to water and marine resources.

8. Conclusion

ESRS E3 is an important framework designed to address water and marine resources and guide companies in reporting their water and marine resources-related activities. Water and marine resources are important to the environment and life in general, making accurate reporting essential. This article has highlighted key aspects, such as the importance of water and marine resources reporting, objectives of ESRS E3, and various components within the framework, including governance and strategy, impact, risk, and opportunity management, metrics and targets.

By understanding ESRS E3, companies can better address and mitigate their water and marine resources-related impacts, risks, and opportunities, contribute to a sustainable future, and meet their reporting obligations. Water and marine resources remain critical to sustain life, and ESRS E3 plays a crucial role in preserving these resources.

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