As Water Costs Become More Variable And Expensive, Reuse Looks Like Good Investment

By Laura Huepenbecker
Caloris Engineering

As for any industry, the cost and revenue implications of investing in new technologies is often at the forefront of every decision for food and beverage companies. Investors, shareholders, employees, and company executives want investments in expensive technologies – like water reuse applications – to cut costs and generate surplus revenue.

Are companies driven to invest in sustainability, specifically water sustainability, for the cost savings and potential investor engagement? What drives investors, compared to company CEOs? By measuring the growth of sustainability, examining the financial performance of sustainable business, and comparing the investor and CEO perspectives of corporate sustainability, it is clear that investing in sustainability – particularly water reuse – is both a popular choice and cost-effective investor strategy in an increasing complicated environment.

As water costs are expected to become both more variable and more expensive, and as investing in sustainability has proven to be profitable, more and more food and beverage companies are driven to invest in water reuse due to the resultant reduced costs and additional revenue.

The “true cost of water” is hotly debated in the environmental and corporate spheres. Although the cost of water is rising in the US, most users still consider its cost imprecise, as the dollar cost of water hardly ever considers the external cost of water extraction such as drought or flooding. Additionally, abrupt cost hikes are anticipated for industrial water and wastewater treatment use, which in turn disrupts a company’s profitability (especially the food and beverage industry with its high water demands).
Food and beverage processors rely on cheap inputs to cut costs – particularly underpriced water. Increasing costs of water and projected rapid rate hikes are immediate concerns for the food and beverage industry.

Prudent investments beginning today, made according to a scheduled plan, will increase the odds that a company can smoothly cope with even rapid rate hikes in the future. Thus, food and beverage companies are driven to invest in water reuse technologies to mitigate rising costs of water. By investing in water reclamation, companies can cut water costs in a period where it will become more and more expensive.

Sustainable investments, like water reclamation technologies, are continuously proving to be profitable. Just as companies choose to invest in water reuse to cut input costs of water, more companies are collecting additional revenue from broad sustainability investment. Indeed, more and more companies are choosing to invest in sustainability – often referred to as environmental, social and governance, or “ESG Investing” – for its financial outperformance, global popularity, lowered costs and employee satisfaction incentive.

ESG management and investing is synonymous with “responsible investing,” or a means to expand a company’s objectives beyond pure financial considerations to reflect their values and to contemplate their impacts on the greater community. There has been an extraordinary proliferation in the number of companies that focus on ESG sustainability within their operations. In 2015, 72 percent of S&P500 companies were reporting on sustainability.

Water conservation investing, in particular, has also increased rapidly. More investors are participating in water conservation, exemplified by the Carbon Disclosure Project’s (CDP) water program, which 137 investors used in 2010, and over 600 investors used in 2015. The CDP investor members include asset managers such as Allianz, Blackrock and UBS.

Investors are interested in sustainability. As an example, about $60 trillion in assets under management, or 50 percent of the total global institutional assets base, are currently managed by the UN-supported Principles of Responsible Investing (PRI) signatories, a commitment to ESG considerations within investment decisions.

In 2017, Sustainalytics reports that ESG investment strategies now account for $8.7 trillion in assets in the US, up from $6.6 trillion in 2014. In the eyes of investors, sustainable investment is typically considered profitable and rewarding, as long as the effects of these investments is tangible and can be measured.

By investing in water reclamation, companies can cut water costs in a period where it will become more and more expensive.

In fact, ESG investments can drive financial outperformance. Plentiful research illustrates this:

• An Oxford University Smith School of Enterprise and the Environment meta-study of more than 200 different sources found a positive correlation between “diligent sustainability business practices and economic performance.” Eighty-eight percent of reviewed studies find that companies with robust sustainability practices demonstrate better operational performance, and 80 percent of these studies show that stock price performance of companies is positively influenced by good sustainability practices.

• A Harvard study on corporate sustainability asserts, “firms with good performance on material sustainability issues significantly outperform firms with poor performance on these issues, suggesting that investments in sustainability issues are shareholder-value enhancing.”

• The Rand Corporation reported that socially responsible funds do no worse than average, and at worst, socially responsible business practices are “on aggregate economically neutral.”

• In analyzing the link between ESG and corporate bond performance, Barclays Research found a positive ESG tilt parallels a small but steady performance advantage.
Investors are also particularly interested in companies that compete in a water-intensive industry, like the food and beverage industry. Risk strategies like desalination and wastewater reuse are considered lucrative by investors. Additionally, investors are most likely to engage in ESG investing if the results are measurable. For the food and beverage industry, this means a calculated return on water savings, cut costs and operational benefits.

CEOs, company managers and directors are also increasingly driven toward engaging in sustainable practices for the resulting competitive advantage. A 2013 Accenture study collected responses from 1,000 CEOs in 103 countries and 27 industries about sustainability in their businesses.

Eighty percent of CEOs view sustainability as a “means to gain competitive advantages relative to their peers,” and 81 percent report that the sustainability reputation of their firm is important in consumers’ purchasing decisions. Further, 76 percent of CEOs believe that embedding sustainability into core business will “drive revenue growth and new opportunities.”

Martin Wolf, a long-time leader and director of product sustainability and authenticity at Seventh Generation, the plant-based household supplies company, speaks candidly about what influences their company’s sustainability investments. When asked what drives Seventh Generation to be intensely interested in ESG sustainability, Wolf responded easily, “Money!”

Wolf cites evidence that companies that have publicized sustainability policies attract more customer loyalty, tend to grow faster than conventional companies, and explained that as you adopt sustainable practices, a firm’s costs decrease as it can precede regulatory requirements. He asserts that a business needs to be sustainable in order to be taken seriously.

CEOs also are driven to focus on ESG components within their business in order to attract and retain proficient employees. A Bain and Company survey found that almost two-thirds of employees say sustainability is very important to them.

Further, sustainability investments attract a rising workforce. By 2025, Millennials will make up 75 percent of the global workforce, and this large base is demanding meaningful work. A recent Society for Human Resource Management study reports that 94 percent of millennials want to use their work skills to “benefit a cause.”

Corporate sustainability – particularly focused toward water-related technologies – is more than just a trend; it has become a wise business choice. Investing in wastewater reuse technologies can significantly cut costs, and paying attention to ESG factors attracts customers, investors and employees alike. More companies are driven to invest in environmental, social and governance aspects purely for revenue considerations, and this trend is expected to endure

This is an excerpt of Caloris Engineering’s new white paper “Drivers of Corporate Sustainability.” The full report can be downloaded at:

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