Striving to quench the world’s thirst for beer, sustainably.
With water scarcity worsening, ABInBev still uses more than 32 liters of water for every 1 liter of beer it produces. Is the company doing enough to mitigate the risk of increased water scarcity caused by climate change?
Global water crisis
It is estimated that water scarcity affects more than 40% of the global population and is projected to rise. 663 million people do not have access to clean water and over 1.7 billion people currently live in river basins where water usage exceeds replenishment. Due to this clean water shortage, millions of people die from diseases associated with inadequate water supply, sanitation and hygiene. Climate change has increased the severity and frequency of floods and droughts, thus worsening the situation. In response, the United Nations has prioritized the reduction of water scarcity in its sustainable development goals, promising to provide clean water and sanitation to all by 2030. [1]
ABInBev’s water needs
Anheuser-Busch InBev (“ABInBev” or the “Company) is the world’s largest brewer and consumes 1.5bn hectoliters of water per annum. For every 1 liter of beer produced, ABInBev consumes more than 32 liters of water, 3.2 liters of which is used in the brewing process. The other c.90% of water consumption is used for crop cultivation. Water crises, in the form of floods or droughts, affect crop cultivation and beer production. Water is critical to the production of beer and is the largest risk to the Company related to climate change. [2]
Figure 1: ABInBev’s sources of water in 2016
In the pursuit of profits, ABInBev risks siphoning water supply from humans, especially in water crisis prone areas in North America, South America, Asia and Africa. There comes a point when an additional liter of water for beer production is not worth the risk in some of the geographies the Company operates in. To continue operating sustainably, it should be ABInBev’s goal to reduce, and possibly eliminate, water scarcity risk in its supply chain.
What is ABInBev doing about this?
The Company has put in places several measures that aim to reduce water usage and increase supply of water to communities in and around the Company’s operations. [3]
Formal structures
A Technical Advisory Committee has been formed to provide guidance on the Company’s water initiatives. It’s made up of experts on watersheds, water systems and sustainable agriculture. Furthermore, the Company introduced a “water risk assessment” framework that monitors water risk in the business and its potential impact.
Social initiatives aimed at customers
The “Buy a Lady a Drink” campaign was launched in partnership with Water.org. The campaign asks for a $6.25 donation (to purchase a Stella Artois chalice) with the proceeds being used to provide clean water to one woman for 5 years. The programme has raised US$3m thus far. [4]
Water usage initiatives
Best practice farming and water management techniques that improve water usage are being implemented at the farms that cultivate crops for ABInBev. At brewing facilities, the company aims to reduce water consumption from 3.2 liters of water per liter of beer to 3.0 liters of water per liter of beer, by 2020 – a 6% improvement over 4 years. [5]
Tackling water availability
In India, where two of its breweries had alternative water sources, ABInBev was successful at tapping these sources to supplement water supply from municipalities. In other areas, such as Ghana and Zambia, where clean water alternatives are not available, the Company may need to consider investing in water treatment facilities to operate at capacity. [6]
Ceasing production
With growing water scarcity, companies such as ABInBev can be perceived as the problem regardless of how efficient they are. Due to community pressure, ABInBev had to withdraw an application for a permit to draw water from an aquifer in El Salvador for a water bottling plant. Although it’s not beer production facility, it’s not a stretch to imagine the same occurring at beer production facilities in water scarce communities in the future.
What else could be done?
In a world where 40% of the population does not have access to clean water and water scarcity is deteriorating, ABInBev should ensure that it not only does it maintain the existing water supply, but that it also improves it. As an organization that has the potential to do good on a global scale and is also exposed to the same water scarcity risks as the rest of us, ABInBev should be doing more.
To positively contribute to the water supply, ABInBev should consider the following:
- Investing in water purification and desalination plants;
- Committing a percentage of its profits (and disclose the amount) to clean water initiatives;
- Investing in R&D for water conservation efforts in the crop cultivation and brewing process; and
- Making themselves accountable, and report on, water usage at crop cultivation stage. They have de-emphasised this in their recent investor reports.
Generally, where should the Company’s responsibility to contribute positively to the clean water supply end and is it already doing enough? What more could ABInBev do? Furthermore, given the nature of this crisis, is regulatory intervention inevitable and how could ABInBev respond to volume and price control on water sourcing?
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Citations
[1] – United Nations, “Water”, Accessed Nov. 2017. http://www.un.org/en/sections/issues-depth/water/
[2] – ABInBev, “Better World Report 2016”, Accessed Nov. 2017. http://www.ab-inbev.com/content/dam/universaltemplate/ab-inbev/BetterWorld2/reporting/better_world_report/ABInBev_2016BWR.pdf
[3] – SABMiller, “Sustainable Development Report 2016”, Accessed Nov. 2017. http://www.ab-inbev.com/content/dam/universaltemplate/ab-inbev/investors/sabmiller/reports/sustainable-development-reports/sustainable-development-report-2016.pdf
[4] – Stella Artois, “Buy a Lady a Drink”, Accessed Nov. 2017. http://www.stellaartois.com/en_us/buy-a-lady-a-drink.html
[5] – The Guardian, “SABMiller: More Beer From Less Water”, 30 May 2012, Accessed Nov. 2017. https://www.theguardian.com/sustainable-business/best-practice-exchange/sabmiller-more-beer-less-water
[6] – Financial Times, “Water supply threatens the flow of SABMiller’s Zambian expansion”, 10 July 2015, Accessed Nov. 2017. https://www.ft.com/content/359801aa-2403-11e5-bd83-71cb60e8f08c
As mentioned, Anheuser-Busch InBev has a responsibility as a major water consumer to take steps to ameliorate the issue of global water shortage.
Part of ABInBev’s current strategy which was not touched upon is to partner with governments to tackle the issue. Taking the example of South Africa we can see that ABInBev worked with the public and private sector to create a digital platform that would inform farmers of water availability in deciding which irrigation site to use. Additionally, the company worked directly with farmers to train on best farming practices that reduce environmental impact and provide the most efficient use of water [1]. The company should invest in expanding such digital initiatives that can create water tracking systems globally. Also, in countries with very limited resources, ABInBev must halt production as was the case in El Salvador as the essay noted. This could lead to an increase in shipping costs, however if the company can continue to figure out how to use water more efficiently through R&D, perhaps these cost savings can help cover an increase in shipping.
[1] Our Stories. ABInBev. 25 Apr. 2017, http://www.ab-inbev.com/news/our-stories/better-world/south-africa-partnering-to-protect.html
To take a bit of a contrarian viewpoint, I’m not sure ABInBev has a huge responsibility here. I’d argue that the real water crisis revolves around poor infrastructure in many developing countries. As the UN report cited your piece says, “There is enough fresh water for everyone on Earth. However, due to bad economics or poor infrastructure, millions of people (most of them children) die from diseases associated with inadequate water supply, sanitation and hygiene.”
There are some localized water shortages that may affect ABInBev. But I’d argue that by and large the issue at hand isn’t that ABInBev is using too much of a scarce resource by turning it into beer or growing barley, the real issue is that in places like much of India, rural Paraguay (where I spent time building latrines to address exactly this issue), etc. the water supply is contaminated due to human pollution and animal pollution. It’s such an important issue and working to solve it would radically improve the world (diarrhea from unclean water is one of the leading killers of children globally). But it’s not an issue that I see ABInBev as particularly implicated in! I do think it’s admirable that they’re working on this issue, and I certainly hope they continue to do so for the sake of the communities they operate in, but I’m not sure they have an obligation to do this work more than any other company operating in countries with water infrastructure problems.
Is AB InBev reducing their water usage because it is scarce to them and they want a sustainable business, or are they doing it for financial benefits? Like the issues we discussed with Ikea, I would argue a little bit of both.
Yet unlike lumber, it sounds like they have pricing/sourcing under their control with price agreements and local investing in infrastructure, so it sounds like this is a sustainability/environmental play or a move to make sure their prices stay low. If that’s the case, maybe their next push needs to be to other companies and organizations to help them also reduce their usage of water. AB InBev is a large company but just one company, and if they cut down their water usage but competitors and other businesses still use in excess, I’m not sure this will have the overall impact they are looking for.
Great article but I am pretty skeptical of AB InBev. Though they have take steps to addressing the water crisis, none of their initiatives neutralize their impact on society’s water resources. Further, since water is a critical piece of their supply chain, I don’t think they truly care about it that much. They are purely financially motivated and want to grow their customer base while keeping their costs in line. AB InBev’s reactions to the water crisis seem to be green marketing at best.
As a public company, I believe AB InBev’s primary goal lies in its fiduciary duty to its shareholders – to maximize profit and returns on its share price. Now, sustainability for a massive company like AB InBev is clearly a huge issue for society at large, however, I don’t believe the company will feel any of the effects from water scarcity on its bottom line in the near future. As a result, I believe the duty to push AB InBev towards a more sustainable model should come from government regulation, shareholders, and consumer boycotts, in order to incentivize the firm to truly make a push towards sustainable water consumption. Until that happens, I do not believe the firm is truly trying to do much. Yes, we have seen some initiatives, however, to me, it seems more like green marketing, as most of the initiatives haven’t yielded much return. Reducing water consumption by 6% over the next 4 years is far less than many other companies are doing and the “Buy a Lady a Drink” initiative has only raised $3M – a drop in the bucket for a company with a market capitalization of $190 billion.
I think this is a very interesting topic and thank you for sharing!
Thank you for sharing- great topic! I feel personally conflicted on this topic. While I see that point of view that AB InBev is a large consumer, especially in certain locations, they are not driving the scarcity. The scarcity (or inefficient distribution) is due to lack of infrastructure. Is that the responsibility of a public company to take on? I don’t think so. That feels like the role of government to me. HOWEVER, if they see a problem on the horizon (and they do based on the initiatives they are dabbling in), it’s hard to see a situation where they ignore the issue the are contributing to and ignore it. A company that I admire in a little bit of a similar space is International Paper. For every tree they harvest for their paper business, they plant 3 or 4 more. This is leading to an actual increase in the forest land where they play. To me that makes a real impact. For AB InBev to have that kind of an impact, they have to make substantial capital investments. To the point above, I think there is a side that says that does increase Shareholder Vale because it ensures the long-term viability of the model and reduces the risk of being regulated out. Without the increase in value to shareholders though, I’m not sure this sits on their shoulders.
I do not feel that ABInBev has a responsibility to reduce their water usage except to the effect that it grows revenues (through greater sales vis a vis marketing or consumer goodwill), reduces costs or ensures that the company avoids a certain, significant supply or demand disruption in the future. Consumers are not yet demanding improved water conservation practices. Reducing water usage is unlikely to reduce ABI’s costs and would almost certainly require significant investments in and changes to their current supply chain and production process. Lastly, as another post mentioned already, water scarcity today impacts select, localized markets and I do not believe the company faces a burning platform necessitating a reevaluation their water supply today. Instead, consumer groups, grassroot organizations and governments should work together to highlight the water scarcity issue and allow market forces to waterfall and drive company’s such as ABI to change their approach in the face of changing consumer demand, competitive pressures and/or new regulation.
I feel that ABInbev has a very strong role to play in the reduction of water usage across CPG companies. As this case notes, ABI is one of the world’s largest consumer good companies and therefore has the responsibility to set the standard across their competitors. Though this effort can quickly be misconstrued as a form of “green washing”, when one considers the actual investment that the company has made on behalf of these efforts, I believe it is clear that they have put their money where the mouth is, so to say. Given their Brazilian roots, it seems like both a cultural as well and corporate social responsibility effort to further this movement. My only question remains to the company, what are they doing to work with governments to enact water sustainability efforts in order to standardize the practice across large corporations?