Water risks can pose major challenges for companies worldwide: from water scarcity and stricter regulations to conflicts with local communities. These risks don't just affect your production, but also supply chains and investor relations. From 2025 onwards, EU requirements like the CSRD and the EU Taxonomy will tighten reporting obligations.
What can you do? A systematic water risk assessment helps you identify vulnerabilities, reduce costs, and meet legal requirements. Tools like the Aqueduct Water Risk Atlas and the GEMI Local Water Tool support you in analyzing global risks and developing site-specific measures. The key lies in combining data analysis, local understanding, and clear action plans.
With the right strategy, you can not only minimize risks but also create competitive advantages. Learn how this works in practice in the article.
A thorough water risk assessment begins with awareness at the management level. It's crucial that you recognize how water risks can influence the entire value chain. The first step is to identify all business areas that depend on water and evaluate their strategic relevance.
This is followed by value chain analysis. Here, suppliers, production sites, and distribution channels are examined for their dependence on water resources. Particularly critical are suppliers in water-scarce regions or industries with high water consumption, such as the textile or chemical industry. The goal is to identify geographical hotspots that pose potential risks.
The third step is site-specific detailed analysis. Each production site is examined individually, considering local water availability, quality requirements, and regulatory frameworks. It's important to analyze not only current conditions but also future developments such as climate change or demographic changes.
These steps create a solid foundation for defining and evaluating measurable risk parameters.
Water stress scores are a central component of risk assessment. This scale from 0 to 5 shows how heavily a region's water resources are being utilized. Values above 4.0 indicate extreme stress and require immediate action. The score is based on the ratio between water withdrawal and renewable resources.
The water withdrawal rate indicates a site's annual water consumption in cubic meters and relates this to local availability. This metric becomes particularly meaningful when differentiated by water sources such as surface water, groundwater, or treated wastewater, as each source carries different risks.
Regulatory exposure assesses the risk from legislative changes. Political stability, environmental standards, and the frequency of regulatory changes play a role here. In Germany, for example, stricter EU Water Framework Directive requirements increase regulatory demands.
Water quality indices analyze both incoming and outgoing water streams. Aspects such as pH value, heavy metal content, or biological contamination are examined. Deterioration in input quality can increase water treatment costs, while problems with wastewater quality can lead to sanctions.
A comprehensive risk assessment emerges from linking internal operational data with external risk data. Internal data includes water consumption, costs for procurement and treatment, historical disruptions, and investments in water-saving technologies. This information comes from sources such as environmental management systems or production reports.
External data sources provide geographical and climatic context. These include satellite-based precipitation measurements, hydrological models, and demographic forecasts. Particularly valuable is data on competing water users in the region, as these can influence available water supply.
Data integration often occurs through geographic information systems (GIS), which combine location data with regional risk maps. Modern platforms enable the integration of real-time data from weather stations, gauge measurements, or groundwater levels. This continuous monitoring helps identify risks early.
Careful validation and plausibility checking of data is essential. Internal consumption data should be compared with external benchmarks to identify errors or outliers. Historical events such as droughts or floods can be used as reference points to verify the accuracy of risk models. With these integrated insights, you can target and effectively align your ESG strategies.
There are specialized tools that support companies in making informed decisions in water risk management. They combine scientifically sound data with user-friendly interfaces. We'll introduce you to two central tools that facilitate the entire assessment process.
The Aqueduct Water Risk Atlas by the World Resources Institute (WRI) is among the leading tools for global water risk analysis. With a scientifically validated methodology, the platform creates detailed and customizable maps for various water issues. The latest version, Aqueduct 4.0 (released in August 2023), offers even more precise data and expanded features.
The tool covers physical risks such as floods, droughts, and water stress, but also considers regulatory and reputational risks – an important point for German companies that must comply with strict EU requirements. Thanks to analysis at the watershed level, risks for specific locations can be precisely assessed. Through the Aqueduct Alliance, WRI also offers strategic consulting and industry-specific insights for companies.
Particularly for internationally active companies, the global comparability of data is a major advantage. The platform is updated every 4-5 years. With the latest version, users can conduct even deeper analyses through access to hydrological models.
The free GEMI Local Water Tool (LWT) is specifically designed to assess site-specific impacts and risks of water use and discharge. It combines data on a company's water inflows and outflows with information about the respective watershed. This allows quantification of the relative impacts of individual facilities. These detailed results form the basis for tailored management strategies and help develop targeted risk mitigation measures.
The GEMI LWT can be easily connected with other tools. It was developed in collaboration with the WBCSD and can be directly linked with the WBCSD Global Water Tool as well as the IPIECA GWT for the oil and gas industry. This creates a seamless transition from global prioritization to detailed local assessment. For the oil and gas sector, there's also a special version tailored to the requirements of this industry.
Which tool is right depends heavily on the specific use case and desired level of detail. While the Aqueduct Water Risk Atlas is ideal for initial screening and prioritization across large portfolios, the GEMI Local Water Tool is better suited for in-depth, site-specific analyses. The following table gives you a quick overview of the differences:
| Criteria | Aqueduct Water Risk Atlas | GEMI Local Water Tool |
|---|---|---|
| Application Scope | Global screening and comparison | Site-specific detailed analysis |
| Data Granularity | Watershed level, global data | Facility-specific data combined with watershed data |
| Primary Purpose | Risk identification and prioritization | Impact assessment and management planning |
| Cost | Free | Free |
| Update Frequency | Every 4-5 years | Continuously available |
| Integration | Standalone tool | Links with WBCSD Global Water Tool |
A strategic approach could look like this: First, you use the Aqueduct Water Risk Atlas to identify potential risk locations. Then the GEMI Local Water Tool is employed to analyze these locations in detail. This combination provides a comprehensive foundation for effective water risk management.
Water risk assessments only unfold their value when they lead to concrete actions. Companies face the challenge of deriving practical steps from comprehensive data and embedding these into their existing processes. The transition from analysis to implementation requires a systematic approach that considers both technical and strategic aspects.
The starting point of a successful water risk assessment is collecting relevant data. You should use both internal and external data sources to precisely identify risks.
Special attention should be paid to so-called hotspots – locations or processes where intensive internal water use meets external risk factors such as water scarcity or regulatory uncertainties. These hotspots require prioritized treatment and targeted analyses.
A helpful tool is the risk matrix, which categorizes locations according to the probability and impacts of potential water risks. Production facilities in water-scarce regions with high water consumption typically land in the highest risk category. This prioritization enables efficient allocation of resources to risk mitigation measures. This creates a solid foundation for adapting the assessment to local conditions.
Global risk assessments only make sense when interpreted in the context of local specificities. What appears as moderate risk at the regional level can be significantly amplified or mitigated by local conditions. A decisive factor is the regulatory framework – particularly in Germany, where strict environmental regulations and the upcoming CSRD reporting requirements bring additional demands.
Local water infrastructure and quality also play an important role. A location in a water-rich region can still be risky if the infrastructure is outdated or water quality is inadequate. Conversely, modern technologies such as efficient treatment plants can significantly reduce risks in water-scarce areas.
Another important point is stakeholder engagement. Involving local communities, authorities, and other water users provides valuable insights that are often unconsidered in standardized assessment tools. These perspectives not only increase local acceptance but are also crucial for a realistic risk assessment. Such local insights flow directly into developing appropriate measures and help seamlessly integrate the water risk management strategy into the overarching ESG strategy.
Concrete action plans should be derived from risk analysis, encompassing both short-term and long-term measures.
Short-term measures could include improving existing processes, introducing precise monitoring systems, or diversifying water sources. Long-term strategies, however, often require larger investments, for example in water technologies such as closed-loop systems, modern treatment processes, or alternative water sources. You should consider not only current water prices but also possible future price increases and regulatory developments.
The developed measures should be integrated into the company-wide sustainability and ESG strategy. This not only facilitates internal coordination and budgeting but also strengthens external communication with investors and other stakeholders.
A crucial component of successful action plans is monitoring and continuous improvement. Regular reviews of progress, adjustments to changing framework conditions, and integration of new insights ensure that the water management strategy remains effective long-term. Both quantitative metrics such as water consumption per production unit and qualitative aspects such as stakeholder satisfaction should be included.
Water risks play a central role in ESG strategies (Environmental, Social, Governance) and are no longer isolated topics. Instead, they are closely linked to climate resilience, social responsibility, and long-term business strategy. Companies increasingly recognize that without thoughtful water management, they risk not only ecological but also economic consequences.
The urgency of this topic is highlighted by alarming figures: Over 90% of all natural disasters worldwide are related to water and weather. In the US alone, the National Oceanic and Atmospheric Administration recorded 28 weather and climate disasters in 2023, each causing damages of more than $1 billion. These developments clearly show that water management must be a central component of climate risk strategies and serve as the foundation for sound ESG reporting.
Requirements for reporting water risks are noticeably increasing. Between 2017 and 2022, corporate disclosure of water data increased by 85%. In 2023, 4,815 companies reported their water-related data to CDP – an increase of 23%.
In Germany, the Corporate Sustainability Reporting Directive (CSRD) brings significant changes. The number of companies required to report increases from 550 to 15,000. These companies must not only identify water-related risks but also analyze their financial impacts and incorporate them into scenario analyses.
Additionally, the EU Taxonomy tightens requirements. Water management is viewed here not just as an environmental factor, but as a contribution to multiple environmental objectives, including climate change adaptation and protection of water resources. Companies must demonstrate how their activities support these goals.
A crucial trend is the transition to dynamic modeling approaches. Instead of relying on historical data, companies must incorporate forward-looking climate projections into their assessments. This requires close collaboration between water management, sustainability, and finance departments.
Given these challenges, specialized consulting becomes indispensable. Fiegenbaum Solutions offers exactly this expertise and helps companies seamlessly integrate water management into ESG strategies. Johannes Fiegenbaum combines regulatory know-how with entrepreneurial understanding – a combination that is particularly advantageous when implementing CSRD and EU Taxonomy requirements.
Services include developing customized water risk frameworks that both comply with regulatory requirements and are practically implementable. Quantitative assessment models are combined with qualitative stakeholder analyses to create a comprehensive picture of water risks.
Another focus is on linking water management and decarbonization strategies. Many companies overlook the interactions between water and energy efficiency. Fiegenbaum Solutions helps recognize these synergies and convert them into concrete cost savings.
The development of impact models and scenario analyses is also part of the portfolio. These models consider both local water availability and specific regulatory frameworks in Germany and the EU. This provides companies with tailored solutions for their individual challenges.
After defining strategic frameworks comes implementation – and here flexibility is required. By 2050, water-related conflicts could increase by about 40% under higher emission scenarios. This shows how important continuous monitoring and adaptation are.
Successful companies rely on regular review cycles that include both quantitative data and qualitative developments. Modern monitoring systems combine internal consumption data with external factors such as water availability, new regulatory requirements, and changing stakeholder expectations.
An often overlooked aspect is the influence of consumer perspective. A 2024 analysis found that one-third of US consumers stopped purchasing certain products because their production uses too much water. German companies should recognize similar trends early and adjust their strategies accordingly.
Furthermore, social risks must be considered. Water stress, such as from droughts, can more than triple the likelihood of social conflicts. Companies in water-scarce regions should incorporate these risks into their assessments and develop preventive measures.
Technology plays a key role here. Digital platforms and AI-supported analyses enable real-time assessment of water risks. By linking weather data, satellite information, and local water level reports, potential risks can be identified early. Integrating these technologies into existing ESG management systems allows companies to act proactively rather than reactively.
Assessing water risks is not just a compliance exercise for German companies, but a strategic opportunity. Given tightened regulatory requirements and growing ecological challenges, companies should act early to gain an advantage over those who merely react to external pressure.
The approaches and tools explained above provide a solid foundation for analyzing such risks. However, the real added value only emerges through targeted interpretation and integration of results into specific company processes and ESG goals. Mere data collection remains ineffective without strategic anchoring.
A crucial success factor is regular review and adaptation of assessment models. With the dynamics of water-related risks and changing regulatory requirements, it's essential to continuously develop strategies. These measures can be ideally integrated into a comprehensive ESG strategy, but require both technical know-how and deep understanding of changing framework conditions.
Fiegenbaum Solutions offers practice-oriented support to master these challenges. Thanks to the combination of regulatory knowledge and entrepreneurial perspective, we develop tailored solutions that not only ensure compliance with regulations but also create economic value. Our expertise ranges from developing modern water risk frameworks through integration into existing ESG strategies to linking with decarbonization goals.
Take the opportunity to proactively manage your water risks and gain a sustainable competitive advantage. Contact Fiegenbaum Solutions and lay the foundation for a future-ready water strategy.
To meaningfully assess water risks, you must first clearly define the scope of analysis. This includes both the geographical regions and relevant water sources to be examined. A combination of global data and specific local information is crucial for obtaining the most accurate picture possible.
The analysis should consider the following aspects:
Furthermore, it makes sense to analyze your own water consumption as well as potential environmental impacts. This way, you can develop strategies that meet both ecological and economic requirements. By clearly prioritizing identified risks, you can derive targeted measures that help you achieve your long-term sustainability goals.
Companies can strategically use the Aqueduct Water Risk Atlas and the GEMI Local Water Tool to better understand and address their water risks. This primarily involves challenges such as water scarcity, water quality, and regulatory requirements. The Aqueduct Water Risk Atlas provides a global overview that can be adapted to local conditions in Germany to precisely identify risks.
The GEMI Local Water Tool complements this global perspective with detailed analysis of local water resources. This enables companies to develop specific measures tailored to regional requirements and challenges in Germany. By combining these two tools, water risks can be strategically minimized. Companies benefit not only through compliance with regulatory requirements but can also advance their sustainability and ESG goals.
Thoughtful water management plays a central role in establishing your ESG strategy (Environmental, Social, Governance) on solid ground. Why? It supports companies in consistently pursuing ecological goals while simultaneously meeting EU Taxonomy requirements. This taxonomy defines clear guidelines for sustainable handling of water resources – from reducing water consumption to protecting water and marine ecosystems.
Smart water management is more than just an ecological contribution. It helps address risks such as water scarcity or tightened regulatory requirements early on. At the same time, you can actively contribute to conserving valuable resources. The result? Strengthened ecological responsibility that not only improves image but also secures your long-term competitiveness and regulatory compliance.