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As drought spreads, firms could be up the creek

2011 file photo what had been a cotton field near Hermleigh, Texas, left barren by drought.
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2011 file photo what had been a cotton field near Hermleigh, Texas, left barren by drought.

Three straight years of blistering drought have strained Texas' water resources. Some cities like Midland are already steeply raising their water prices. But it's not just residents of the Lone Star State feeling parched. Texas-based companies are scrambling to reduce their water usage and enact long-term water management plans as a critical business concern.

"As the drought continues, industry's eyes are opening," said Jordan Furnans, senior engineer at INTERA, a Texas-based geosciences and engineering firm. Those eyes are opening to discover that more dry years are coming, he said.

There's a desperate need for water to fuel industrial, chemical and energy operations in some parts of Texas. "If plants shut down, they're losing millions of dollars per day," Furnans said.

Such tight water resources are forcing some Texas-based companies to adopt aggressive water management. They're drilling deeper wells—up to 4,000 feet—to find more water. And they're reusing waste water and even turning to systems that can use salt water.

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Texas is a lesson for companies everywhere. Most companies do not currently have a water management plan. That has to change as water shortages appear around the globe. Food companies--especially bottlers like Pepsi and Coca Cola—are already revamping their water usage, but many more water management solutions will have to be embraced in the next few years to help companies stay ahead of the greatest global scarcity challenge—access to fresh water.

"If you don't have an active water management plan in place, you're courting disaster," Furnan said.

Water shortages are already stressing business in China, India, South Africa and parts of South America. Yet most companies aren't moving fast enough to stave off conflicts over the dwindling resource. Over 75 percent of the world's biggest companies see water risks as critical, but most of these companies lack long-term water strategies, a KPMG sustainability report concluded.

Some of the biggest water users among corporations—food and beverage, apparel and technology—are pioneering new ways to reduce their aqua footprint. In addition to Coca-Cola and Pepsi, these include companies like Nike and Anheuser-Busch. They're turning to cooling towers, using gray water—various forms of wastewater—and installing water meters to pinpoint high usage.

AT&T began conserving water in 2010. After doing a water audit, the company found that billions of gallons of water were being used, including water used to cool facilities such as data centers. So the company has implemented energy efficiency measures in water cooling towers and other upgrades to reduce water usage. Overall, AT&T has identified 125 facilities where water management changes can significantly reduce water usage—these facilities account for roughly half of the company's estimated 3.4 billion gallons in annual water usage. AT&T expects to save 150 million gallons of water by 2015. "We will be making water reduction investments for years to come," said John Schulz, director of sustainability operations at AT&T. "It's such an emotional issue when water is running short."

Google has been awarded a patent for a floating data center powered by waves and cooled by sea water.

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Far from Texas, corporations with a global footprint are scrambling to address their water risk because shortages can quickly short-circuit business in developing regions. Water reliability is increasing seen as a competitive edge. In the future, businesses will need to factor water availability—and quality—when searching for new manufacturing sites or face possible shortages. The math is simple: One percent of GDP growth translates into 1 percent more water consumption, and water shortages are already dinging China's growth. Worldwide, shortages will be dire in coming years: By 2030, there will be a 40 percent global shortfall between water demand and water supply, according to the World Economic Forum.

Pepsi Bottling and Coca-Cola ran into these shortages early on. Nine years ago, they closed down plants in India after they were believed to be competing for limited water resource. Since then, Coca-Cola has faced protests about depleting water in other dry areas of India.

Those plant closures are still rare, said Giulio Boccaletti, managing director of global fresh water at Nature Conservancy. Instead, regulators in developing countries are putting pressure on companies by questioning licensing agreements. "The licensing process is slowing down," he said. Some companies that have gone into Africa and privatized the water there have had their plants shut down, said Eric Lowitt, managing director at Nexus Global Advisors.

The "water wars" are forcing corporations to conduct natural resource due diligence before expanding. Some big companies end up playing a key role in shoring up water infrastructure in developing countries, working with citizens and local governments, Lowitt said. In drought-stricken countries like Chile, a company has to bring water treatment to the area to win a license, he said.

"All water is local in developing countries, since it's usually a watershed or basin," said Bert Share, a senior global director at Anheuser-Busch InBev. "So our aim is to understand a community's water issues, such as watershed quality and quantity." The beverage company is also partnering with private landowners to offer them incentives for restoring water quality. "Water management has to be collaborative, because the local issues are so complex," Share said.

Ford, which has operations in 70 countries, is plotting future water scenarios, ranging from scarcity to abundance, to determine how the company will be affected. "India and China are the two countries most on everyone's radar," said Thomas Niemann, Ford's reporting manager for sustainability. The car company aims to reduce its global water use per vehicle 30 percent by 2015 through the installation of water meters and using recycled water, among other methods.

"Companies across the spectrum are facing water challenges. Water is becoming the silent currency," Boccaletti said.

—By Constance Gustke, Special to CNBC.com.

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