Part 3 – License to Operate: The Water Risk Factor

This is the third article in our ‘Rethinking Water Risk’ series. The previous article Beyond Scarcity (Part 2) can be read here.

Across industry, agriculture, and urban development, access to water is no longer a given, it is a strategic variable governed by evolving regulatory frameworks and stakeholder expectations. Regulatory water risks, the second most significant water-related threat to business continuity, manifest when shifts in policy, legislation, or resource management impact a company’s ability to use, manage, or afford water. These risks can erode operational margins, delay projects, or even render them unviable.

Failure to address regulatory water risks does not only invite legal or financial repercussions it can also trigger significant reputational damage. In today’s hyper-connected landscape, non-compliance with water related laws or perceived negligence in managing water resources often becomes a focal point for public and media coverage resulting in businesses losing stakeholder trust, customer loyalty, and their social licence to operate.

These risks also present opportunities. Leading companies are leveraging a proactive and transparent policy-driven water strategy to turn compliance into competitiveness, earning reputational capital, unlocking finance, and building resilience.

“Meeting water regulations is no longer just an exercise, it’s becoming central to how businesses maintain resilience, credibility, and market standing.”

Table 0‑1: High Level Industry Breakdown of Impacts and Opportunities

To mitigate regulatory and reputational water risks, businesses should consider incorporating the following into their strategies:

• Track Policy Signals Early: Monitor developments such as the EU Corporate Sustainability Reporting Directive (CSRD), SEC climate disclosures, and African basin-wide water governance initiatives.
• Strengthen Internal Water Compliance Frameworks: Establish robust internal protocols to meet and exceed local and international water regulations.
• Engage in Policy Dialogue: Collaborate with regulators and stakeholders to co-shape practical, regionally relevant water use standards.
• Invest in Monitoring Technologies: Smart metering and AI-enabled auditing tools can ensure real-time compliance and flag deviations proactively.
• Develop a Corporate Water Strategy: Integrate regulatory water risks into ESG strategies and annual risk disclosures.

Real World Impact

Water risk is being reclassified from an environmental compliance issue to a financial disclosure requirement. Upcoming global regulatory trends in water resource management include:

• Climate related financial disclosures:

Frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and its successor under the International Sustainability Standards Board (ISSB) are pushing for more granular reporting on water-related physical and transition risks. These standards increasingly require businesses to assess how water availability, quality, and regulation could impact financial performance.

• EU corporate sustainability reporting directive (CSRD):

The CSRD expands the scope and detail of non-financial reporting, including water use, discharge, and impact across the value chain. From 2024, thousands more companies, both EU-based and international entities with EU operations, must comply.

• Corporate water stewardship in global supply chains:

Countries such as Germany (with the Supply Chain Due Diligence Act) and upcoming legislation in Canada and the Netherlands are mandating environmental due diligence across supply chains—including water use, pollution, and access rights.

• African basin-level water governance reforms:

River basin commissions such as the Orange-Senqu River Commission (ORASECOM) and Nile Basin Initiative are moving towards integrated water resource management frameworks. These promote cross-border licensing, data sharing, and corporate alignment with basin sustainability goals.

• Asia-Pacific urban and industrial water policies:

China’s 14th Five-Year Plan for Water Security and India’s National Water Mission are introducing stricter water quality, usage, and efficiency benchmarks, especially for heavy industry and urban development.

• Net-zero and nature-positive frameworks:

Water is becoming central to global biodiversity and net-zero strategies, especially under the Kunming-Montreal Global Biodiversity Framework adopted at COP15. This includes targets for restoring aquatic ecosystems, controlling pollution, and protecting freshwater flows.

• Financial sector due diligence on water risk:

Investors and insurers are integrating water stress data into their ESG risk models. Non-disclosure or weak performance on water issues may lead to capital access constraints.

Implementation Tips 

• Conduct Regulatory Risk Mapping: Identify current and emerging legislation across operational geographies.
• Establish a Water Governance Team: A cross-functional taskforce to liaise with compliance, legal, operations, and sustainability leads.
• Engage in Capacity Building: Train staff on policy changes and compliance best practices.
• Utilise Scenario Planning: Model the operational and financial impact of regulatory tightening.
• Report Transparently: Use frameworks like CDP Water, TCFD, and GRI to report on water risks and mitigation actions.

Once treated as a utility, water is now a governance issue that intersects regulation, community rights, and financial risk. However, when managed strategically, regulatory water risks can unlock competitive advantage. Companies that stay ahead of policy changes, integrate compliance into their planning processes, and maintain open stakeholder engagement are more likely to manage costs effectively, limit operational disruption, and meet investor expectations.

The next leaders in sustainability will be those who view policy-driven water strategy not as a constraint, but as a catalyst for innovation and growth.