Multinational companies have historically taken water availability for granted. But this is changing. A 2013 World Economic Forum report named water scarcity as one of the top global risks facing companies in the 21st century. So far, 93 multinational corporations have committed to the UN Global Compact's CEO Water Mandate, a public-private partnership to advance water sustainability — an exponential increase from the original six signatories in 2007. As more business leaders recognize pressures related to water availability on their supply chains and profits, they are growing more aware of the impact of irresponsible water use on "intangible" business value such as reputation, brand and customer relations.
In 2014 the world will see even more companies increase water-related investments. This is not only for immediate business purposes, but because water sustains life and is intimately connected to all aspects of economic development. Business leaders understand this and will increase their focus on their own use of water as well as on water and sanitation access in the communities where they operate. In the year ahead cross-sector collaboration will also grow as the economic value of water climbs steeply.
Traditional charity models are becoming outmoded. What began as investments in digging wells have evolved into far more dynamic, market-oriented approaches like targeted grants intended to optimize social returns per philanthropic dollar.
The PepsiCo Foundation has pledged $35m to water programs in developing countries (including $12.1m to Water.org). Most of this has gone to Water.org's WaterCredit model, a microfinance initiative which links access to finance with access to water and sanitation. The Caterpillar Foundation is investing $11.3m in this market-based approach over the next five years. The IKEA Foundation has stepped in with a $5m grant and companies such as Levi Strauss & Co, and organizations like the Swiss Re Foundation, the MasterCard Foundation and Bank of America Foundation have also joined the effort. Their thinking and action have evolved because they recognize that straight charity is extremely limited as a means to long-term impact.
In 2014 we will see more companies follow this lead, gaining greater influence by focusing on market-based solutions and metrics. They will deploy their philanthropic and corporate-social-responsibility resources in a way that leverages market forces. Firms will focus not just on the number of people reached with services but also on the philanthropic cost per person reached — and strive to push that lower, as commercial capital does more of the heavy lifting through approaches like microfinance.
Expanding options for corporate and individual investors to provide debt financing at concessionary rates is a potentially high-impact model that should be further explored. Committed social-impact investors could catalyze lower-end borrower interest rates so more people could afford small loans to secure water and sanitation services. This type of "double-bottom-line" investing (ie, producing social as well as financial returns) will expand beyond venture philanthropists and find its way into portfolios supported by companies in water services and beyond.
Where there's a well, there's a way
These are just a few illustrations of innovative financial solutions to meeting the need for safe water and sanitation. In 2014 businesses will partner with global non-governmental organizations, assessing water risk, scarcity and opportunity. And high-profile declarations such as the CEO Water Mandate will report on their commitments in six areas: direct operations, supply chain and watershed management, collective action, public policy, community engagement and transparency.
Leading examples of this approach include the investment by Merck and the PepsiCo Foundation in the Safe Water Network, an effort to bring technology and consumer-marketing campaigns to the rural poor in India; Bayer's work to improve wastewater treatment; SAB Miller's collaboration with the Water Futures Partnership, to ensure sustainable water resources in multiple countries; and Unilever's alliance with Oxfam, Population Services International, Save the Children and the World Food Programme, which ranges from providing technology for safe drinking water to efforts to change behavior.
Water plays a central role in all aspects of life, from energy to food security, health and education. That is what makes it so complex to tackle. As water scarcity becomes all too real, collaboration will become essential. Although governments need to lead and commit themselves to infrastructure expansion and affordable service, in 2014 it will be corporate financial innovation and smart philanthropy that help to bring safe water and sanitation to some of the billions in need.
This article originally appeared in the Huffington Post publication. Content was produced by outside parties not affiliated with Bank of America. Opinions or ideas expressed are not necessarily those of Bank of America, Merrill Lynch Wealth Management, U.S. Trust or Bank of America Merrill Lynch, nor do they reflect their views or endorsement. These materials are for informational purposes only. Bank of America, Merrill Lynch Wealth Management, U.S. Trust and Bank of America Merrill Lynch do not assume liability for any loss or damage resulting from anyone's reliance on the information provided.