By: Rachael Bratt, Senior Consultant, Climate Risk – EcoAct, part of Schneider Electric
Many of us learned the basics of water stewardship early on – don’t leave the tap running, have a shower rather than a bath. Don’t waste what is essential. But somewhere along the path to industrial scale, that principle faded from view. In business, water is invisible: easy to access, cheap to use and presumed to be secure.
With climate change, that illusion is breaking. Water stress conditions that were once considered rare such as extreme heat and groundwater depletion now occur with greater frequency. Supply is becoming less predictable while demand is accelerating.
In southern Europe, water shortages have forced restrictions on agriculture and disrupted industrial production. In parts of the United States and the Middle East, long-term drought has reduced hydropower capacity and stressed critical infrastructure. In the UK, infrastructure is showing signs of strain, even in regions previously considered stable.
With water intertwined into the delivery of everything from agriculture and manufacturing and energy generation to the internet, water stress is becoming a major business risk.
The cost of water hides its risk
One of the main factors that has obscured water risk is that it is often underpriced. Many corporate systems record it as a utility cost, not as a variable that could materially disrupt operations rendering water risk invisible in standard budgeting, procurement and risk reviews.
Most organisations measure what they use directly. However, very few consider how much water is required to power their servers, process their inputs, or keep their suppliers operating. Even fewer understand what happens if that water changes in quality: if it arrives hotter, more saline, or more contaminated. Those changes can render systems inoperable, yet these factors – along with water availability, infrastructure fragility and climate-driven volatility – are not reflected in conventional risk models.
Nowhere is this blind spot more obvious than digital infrastructure. A single 1 MW data centre can use over 25 million litres of water annually, and as AI adoption accelerates, global water withdrawal for AI workloads is expected to reach 1.7 trillion gallons per annum by 2027 – more than four times Denmark’s annual consumption. Yet despite this trajectory, water remains largely absent in boardroom agendas – a risk that could quickly undermine the very systems driving future growth.
Water risk, investment and profit
In some sectors, water stress is increasingly a gating factor in operational expansion. For example, data centre site selection increasingly accounts for water availability. Industrial planning must factor in drought risk and public opposition to water abstraction. Access to permits is becoming contingent on showing credible water management strategies. Investment decisions are being challenged by regulators and communities based on long-term water availability.
Those companies who continue to treat it as a secondary concern are likely to see its impact on their bottom line. Even if global temperature increases are limited to 1.5°C above pre-industrial levels, 31% of global GDP ($70 trillion) will be exposed to high water-stress. The business case for action is no longer hypothetical. It is a question of when water stress affects your operations, not if.
Even if water stress is not financially material to a business’ operations, there are reputational and regulatory risks associated with water stress. Disclosure expectations are shifting from general ESG statements to site-specific, model-backed risk data. Frameworks such as TNFD and SBTN are accelerating uptake of watershed-level assessment. Mandates from CSRD and CDP are pushing companies to demonstrate scenario resilience and transparent risk governance. These shifts are closing the gap between voluntary leadership and regulatory obligation.
Understanding the risk: exposure vs. vulnerability
Effective water risk assessment requires more than tracking consumption. It demands an understanding of two dimensions: physical exposure and operational vulnerability.
Exposure is shaped by geography and climate. It reflects where assets are located, how stressed those water systems are today, and how climate modelling suggests that will change over time. Vulnerability depends on the role water plays in an operation whether a site can continue without it, how infrastructure is configured, and whether alternatives or mitigation options exist.
This push towards digitalisation and AI adds a new layer of complexity. As more companies rush to integrate AI, many overlook how heavily water intensive their digital infrastructure has become. Without resilient water access and wastewater strategies, these assets can quickly turn into liabilities.
Traditional water metrics capture very little of this complexity. They measure volume but not dependency and are rarely sensitive to seasonality, contamination or infrastructure failure. However, newer tools such as satellite data, local modelling and scenario analysis now allow companies to map these dynamics with far greater accuracy. These tools offer a level of insight that has not previously been available, although uptake has been slow.
Where companies get it wrong and what CXOs can do now
Companies that struggle with water risk tend to repeat the same mistakes. They report usage in aggregate rather than location-specific terms. They treat water as a fixed input rather than a dynamic constraint. They assume continuity of access because it has never been interrupted before. They fail to assess the quality of what they draw, the resilience of the systems delivering it, or the competition for that same supply.
The gap between perception and reality is growing. The companies that catch up first will have more room to act. The ones that wait may have fewer options and higher costs.
For leaders seeking to strengthen organisational resilience, several steps can help translate awareness into action:
Map localised exposure across operations and supply chains
Focus on high-stress geographies and functions with elevated dependency, such as cooling, processing, and cleaning.
Integrate water into enterprise risk and investment planning
Embed water risk in ERM, business continuity and CapEx decisions. Model how stress could affect asset viability or sourcing flexibility.
Adopt risk-based performance KPIs
Track metrics like reuse ratios, withdrawal intensity in stressed areas, discharge quality, and adaptation costs not just total usage.
Understand upstream and downstream exposure
Your vulnerability may sit with your suppliers, infrastructure hosts or logistics partners. Engage them early.
Collaborate at the watershed level
Water resilience requires collaboration. Companies can work with peers, local governments, and civil society to co-develop adaptive strategies and invest in basin-wide stewardship.
Reframing water: from compliance issue to strategic lever
Water sits at the intersection of environmental risk and financial exposure. It affects operational continuity, long-term asset value, and the ability to grow in a resource-constrained world. For companies betting big on AI and digital platforms, this is no longer a climate issue but an infrastructure constraint which will determine where, and how fast, businesses can grow.
The cost of inaction is rising. In a world of constrained supply and rising expectations, leadership teams that embed water risk into core planning today will be far better positioned to navigate tomorrow’s shocks. In sustainability, we talk often about materiality. With water, the materiality is no longer in question. The only question is whether business leaders will respond: not just in policy, but in practice.
Because the world has changed. And the tap won’t stay on forever.
