Nestlé is one of the world’s largest suppliers of bottled water, with sales of CHF 7.6 billion in 2015 for their Nestlé Waters business. The company sells bottled water under its flagship brand Nestlé Pure Life and through local brands such as Poland Spring in the U.S., Buxton in the United Kingdom and Sta.Maria in Mexico1. Nestlé extracts water from the ground, which it then typically transports via pipeline to its water bottling factories before selling it on to consumers. However, this reliance on groundwater makes Nestlé’s business highly likely to be affected by climate change.
One of the primary impacts of climate change has been depleted water supply and concern for future water shortages around the world, due to melting glaciers and snowpack and changing patterns in rainfall2. A depleted water supply goes directly to the heart of Nestlé’s business, as lower levels of ground water mean there is less raw material available for Nestlé to produce its bottled water. Nestlé needs to make sure that its water supplies are sustainable and that it can adequately measure and manage the water it is taking out of the ground to sell compared to what is being replenished. According to the company’s projections, global withdrawals of water are expected to exceed the available supply of water by 40% in 20303. In order to manage this risk, Nestlé has implemented several initiatives to try to improve water efficiency across its entire business, not just the Nestlé Water business. Examples of these initiatives include introducing zero water technology at factories to reduce use of groundwater in operations, treating and recycling waste water, and instituting Water Resource Reviews. As a result, as of 2015, Nestlé had reduced their direct water withdrawal per product ton by 41% compared to 20054.
Another risk that could impact Nestlé in the short-term is the growing opposition to having corporations control water supply. Nestlé has already stirred up controversy in places around the world where local populations and environmental activists view Nestlé as appropriating natural resources that belong to local populations and then selling their own water back to them for a profit. During the drought in California in 2015, Nestlé extracted 36 million gallons of water from a national forest while only paying $524 annually to the government for the pipeline permit that transports the water from the source to their plant. Environmentalists are pushing for the government to prevent Nestlé from accessing the water until a study can be done to assess the water levels and how much can sustainably be removed from the ecosystem, as government officials acknowledge that “they have no idea how much water is too much to remove, because it’s never been studied”5. Issues such as these not only bring negative publicity to Nestlé and harm its brand, but also increase the likelihood of new potential regulations that restrict Nestlé’s access to water sources as governments either raise the price of allowing Nestlé access to land with large water reserves or limit Nestlé’s ability to buy rights to the water in the first place. As climate change continues to impact water supply, governments and the public will turn a more critical view to what entities are controlling the water supply and act against those they feel do not work in the best interest of the local population.
Nestlé does address climate change not only internally to make its operations more efficient but also externally to increase awareness and drive change outside of its own organization. The firm chairs the 2030 Water Resources group, which aims to address water supply issues by 2030, and is a signatory to the UNGC CEO Water Mandate, working on issues such as policy engagement and the idea of a human right to water6. These initiatives are a way for Nestlé to generate positive press and demonstrate to the public and the government that it does take climate change seriously and is as concerned as the public is about the depleting water supply. If Nestlé can be seen as a partner and collaborator in combatting the negative implications of climate change, rather than an exploitative actor that competes for these scarce resources, they can more easily protect their business interests and protect their own access to the water supply.
Word Count: (710)
1Nestlé, 2015 Annual Review, p. 48, http://www.nestle.com/asset-library/documents/library/documents/annual_reports/2015-annual-review-en.pdf, accessed November 2016.
2Rebecca M. Henderson, Sophus A. Reinert, Polina Dekhtyar and Amram Midgal, “Climate Change in 2016: Implications for Business”, HBS N2-317-032 (Boston: Harvard Business School Publishing, 2016), p. 4.
3 Nestlé, Nestlé in society, p. 26, http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-in-society-summary-report-2015-en.pdf, accessed November 2016.
4Ibid., p. 27.
5Regan Morris, “Nestle: Bottling water in drought-hit California,” BBC News, May 3 2016, http://www.bbc.com/news/business-36161580, accessed November 2016.
6 Nestlé, Nestlé in society, p. 28, http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-in-society-summary-report-2015-en.pdf, accessed November 2016.