Could water put the brakes on your business?

A recent study forecast that water demand will exceed supply by 40% by 2030. There is a direct link between climate change, extreme weather incidents and the availability of water. However, despite water being a crucial resource supporting life and industry, it has not received as much global focus as issues such as greenhouse gas emissions or biodiversity decline. The pending ‘water crisis’ means that managing water resources will become even more critical across multiple industries to avoid disruption to their businesses, particularly as water demand grows and climate change escalates.

Water usage has increased significantly since World War II driven by population growth, the emergence of the middle class, and the proliferation of household technology. Domestic water usage, for instance, has increased by 600 times since 1960, yet still only accounts for 12% of global usage. Agriculture, on the other hand, is by far the biggest user of water, responsible for 72% of global withdrawals.

However, a wide range of businesses depend upon reliable and high-quality water supply. While certain services companies may not have direct water usage needs their suppliers likely will.

Most, if not all, businesses use semiconductors in some way – they are central in communications infrastructure, artificial intelligence, healthcare, quantum and cloud computing, and everyday consumer devices including phones and laptops.

Semiconductor manufacturing requires large amounts of ultra-pure water. The largest manufacturer, Taiwan Semiconductor Manufacturing (TMSC) uses around 150,000 tonnes of water per day, this is roughly equivalent to 60 Olympic size swimming pools. The manufacturing of semiconductors also generates wastewater containing heavy metals and toxic solvents. In 2021, Taiwan experienced its worst drought since 1964, and TMSC were forced to spend over $500m on truckloads of water, causing tension with other businesses and the public.

The 2021 drought exacerbated a global semiconductor shortage, leading to a 26% slump in automobile production over the first nine months of 2021, with Jaguar Land Rover among the affected businesses.

Taiwan's chip-producing region is now preparing for another hot summer and semiconductor shortages are expected to continue until 2024.

Elsewhere, companies that use data centres are also more likely to have a higher exposure to water risks. Data centres consume large amounts of water for cooling – the typical data centre uses around 3-5 million gallons of water per day, this is equivalent to the amount used by a city of 30,000-50,000 people. 

Drought is just one example of how natural disasters impact water supply. Natural disasters are becoming more frequent and intense, a trend exacerbated by climate change. The occurrence of natural disasters has increased by over ten times in the past century, with 90% of climate-related natural disasters related to water, either "too much, too little, or too dirty." The increase is having a significant financial impact, causing an estimated $383 million worth of damage every day over the past decade.

The risk of business disruption due to inadequate water supply is greater than ever, even for firms that are not large direct water users themselves. With increasing water demand and dwindling supply, compounded by increasingly frequent and intense natural disasters, that risk is only going to rise. To mitigate this risk, it is important for firms to identify the potential hazards in their businesses, including areas of water dependency and vulnerability and have the right resiliency solutions in place. 

To discuss your insurance requirements in this evolving marketplace please contact Piers Davis.