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Our Insights 19 Aug 2015

Latin America Trend Series: Water Crisis Challenges Business as Usual, Spurs Innovation

By Tristanne Davis

Flickr image by Ian T Taylor

SustainAbility highlighted water scarcity as one of the key global issues impacting the private sector in 2015.

Specifically in Latin America, several successive years of drought and other climate-related disruptions have made this issue a priority on the region’s political and business agendas. The continent’s ongoing water crisis has greatly affected power supply leading to cuts in hydropower production and increasing reliance on fossil fuels. The region is confronting these challenges and responding to the crisis with innovations from the private sector.

Water Scarcity Reshaping Energy Landscape
Latin America’s reputation as a global leader in clean energy is intrinsically tied to the area’s historic abundance of water resources. The dependence on hydropower is far above the global average, allowing the region to generate more energy from renewables than any other region. The development of hydropower, in fact, has helped Latin America reduce energy sector emissions. However, ironically, this also makes the area susceptible to climate-related disruptions, as sustained power supply depends heavily on rainfall.

Brazil has been among the countries most affected by recent droughts. As the continent’s largest economy struggles to meet its growing energy demands, power blackouts have become the norm. Other countries have faced similar challenges, including Colombia, Venezuela, Bolivia, Uruguay and Chile. Central America and the Caribbean have also been affected; in fact, Honduras must import electricity in response to insufficient hydro capacity.

A number of countries have responded to persistent water shortages by reducing their dependence on hydropower and diversifying energy portfolios. For example, Costa Rica invested $958 million to build four large geothermal plants. Uruguay is aggressively pursuing wind energy, with more than $1.4 billion invested to date and more investment to come. However, as countries are investing in additional renewable energy projects, fossil fuels are increasingly substituted to sustain failing energy networks as power plants are converted from hydro to natural gas. Rising natural gas imports from the U.S. are also helping meet power needs.

Private Sector Responds to the Challenge
Poor management by both governments and business have magnified the crisis. As Beat Grüninger, Partner at BSD Consulting in Brazil noted during our July 1, 2015 trends webinar, while the water crisis was predicted by scientists and engineers years ago, many companies were more focused on “getting shares and paying shareholders.”

As the private sector, policymakers and society now realize the full extent of the water crisis, businesses are ready to take action. Kevin Moss, Global Director of the Business Center at the World Resources Institute expressed during our webinar that companies and regulators are challenging their traditional roles and disrupting conventional models. There are investors who “want to invest money in sustainable future solutions,” according to Moss.

Businesses feeling direct impacts of water shortages are already taking action. For example, mining companies have experienced a reduction in output due to lack of water, as water is needed to make metals concentrates from milled rock. Some of these companies have invested in their own desalination facilities in Chile in response to their own needs and government pressure. Agribusiness has also been a hard hit industry. The US-based brewing company Anheuser-Busch has launched water management pilot projects in barley-growing regions of Argentina, Brazil, Mexico, and Uruguay in response to water stress on its supply chain. Companies like Starbucks are investing in sustainable agriculture and climate-resilient coffee tree varietals in response to temperature-related diseases impacting coffee crops.

Companies are also addressing these issues through a growing number of private and public partnerships (PPPs) that support sustainable development in the region. Argentina is addressing the issue of hydropower through PPPs that combine renewables with existing hydro projects in order to combat power intermittency. Two state-funded universities are launching a novel pilot solar-hydro plant together with privately-owned UROTEX Argentina Nutrition Society with the aim to develop a new scalable power technology.

Beverage giant SABMiller is working through a PPP to finance Aquafondo, a corporate water fund project, which includes paying local communities to rehabilitate ancient pre-Inca water channels that once recharged aquifers and supplied water to Peru’s capital city, Lima. New businesses and technologies are emerging to deal with these issues as well, such as Ambient Water, a US-based firm that sees the drought as a market opportunity to test innovative atmospheric water generation technologies, which extract water from humidity in the air.

The water crisis’ impact on hydropower is challenging Latin America’s leadership in renewables and amplifying already severe water shortage issues. These climate-related disruptions impact economic growth in agriculture, mining, forestry and other industries, which has a ripple effect throughout the world. While a number of businesses and investors are already taking action to pilot innovative solutions, addressing these interrelated problems at large will require holistic, collaborative problem-solving. SustainAbility’s executive director, Mark Lee, will report further on the progress and challenges for companies operating in Latin America during Sustainable Brands conference in Brazil later this year.

This is the first instalment in a series of three blogs about Latin America.

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