Reference no: EM133539880

The business of water

This case explores some of the more recent developments in the world of corporate social responsibility and business ethics. Water as an increasingly scarce and contested resource has become an issue where businesses find themselves more and more confronted by new expectations and demands from society. Whether on the supply side, as providers of drinking water and sanitation or whether on the demand side, as users or marketers of water, private corporations have become key players in addressing needs that sometimes extend substantially beyond their initial economic interests.

Water has increasingly become a contentious political issue-and a hot issue for business ethics. Water is considered a basic human need, and so access to clean water is typically considered to be a fundamental human right. However, although it appears to be abundant, humans can actually only use 1% of global water resources for drinking. While most developed countries have decent access, one in nine people worldwide do not have access to clean drinking water-in total around 783 million people. Every minute, a newborn infant dies from infection caused by a lack of safe water and an unclean environment. To meet the UN Sustainable Development Goals, universal and equitable access to safe and affordable drinking water and adequate sanitation and hygiene needs to be achieved, by 2030, as well as increased water efficiency and reduced water pollution

With an issue this contentious, it is no surprise that water has also increasingly become an ethical issue for business. Business is deeply involved in the world of water, either on the supply side as a provider of safe drinking water and sanitation, or on the demand side as a major user of water as a raw material, or as a product to sell.

Privatizing water utilities

On the supply side, we have seen a marked increase in privatization of water utilities over the last 30 years. The global market here is dominated by a handful of key players, such as Suez, Nalco Water and American Water, who have become increasingly involved in the water business in developing countries. The privatization of water supply, however, has become an ever more heated issue. There are, of course, often good grounds for privatization: municipal water companies have often proved to be inefficient and overly bureaucratic, if not outright corrupt and even failing, as has sometimes been the case in developing countries. Bringing in the private sector, so the argument goes, can increase efficiency, improve service levels, and even help to address poor access to water in the developing world.

The reality, however, yields a rather mixed picture. While proponents such as Globalisation Institute fellow, Misha Balen, argue that the majority of privatizations have actually improved water provision, a number of high profile, and rather spectacular, failures have made activists and politicians more and more opposed to the idea.

According to the critics, at the heart of the problem with privatized water supply is the fact that private companies entering the market for water only do so in the long run if they apply what is called in the industry 'full cost recovery'. One case that hit the headlines in the early 2000s is that of the South African township Ngwelezane in the state of Kwazulu Natal. When the government started to charge full cost recovery for water (allegedly to prepare the water supply system for sale to a private company), the mostly poor and disease-stricken inhabitants of the township could not afford their water anymore. As a result, they resorted to a nearby lake, which led to a cholera epidemic that killed 300 people.

Even more famous are the two so-called 'Water Wars' in Bolivia in 2000 and 2005. The World Bank had given the country a loan for improving the water system and as in most contracts, the Bank demanded privatization of the system (in 2002, more than four-fifths of World Bank contracts required privatization). The system in Bolivia's capital La Paz was ultimately taken over by a subsidiary of the US multinational Bechtel, which found it hard in the beginning to recoup their investments because the system they inherited was in such a dismal state. Since the World Bank contract ruled out government subsidies, the only way to 'full cost recovery' were some changes in the pricing and in the law. Finally, not without some lobbying, Law 2029 was passed, which granted private water companies monopoly rights in the ridings they operated in. This implied that people were no longer allowed to use water for free out of their wells or even to collect rainwater. Law 2029 led to long and violent riots in La Paz and gave rise to a political movement on the left, which culminated in the overthrow of the government in 2006. The privatization of the water system was terminated and reversed in that same year.

But problems with privatized supply are not exclusive to the developing world. In 2017, Thames Water, the private company that serves London and the South East of England, was fined £20 million after pumping 1.9 billion litres of untreated sewage into the river Thames. With issues around water leakage, cost, and excessive profits and dividends, this incident is far from the only criticism levelled at the UK water industry. In France, large water companies have, over the last few years, faced multiple allegations and even some convictions for bribery of municipal governmental officials, and similar cases of corruption are reported from other European countries. In the US, the city of Atlanta stands as a salutary example of some of the limitations of water privatization. Here, privatization in 1999 (to the French company Suez) led to low service levels, exclusion of poor consumers, and higher prices so that the system was ultimately put back into public management in 2003.

 

Serving an insatiable thirst

A slightly different set of issues enters the corporate agenda on the demand side of the story. As with privatization, these issues are particularly acute in the developing world, where Western MNCs can be seen as competing with local business and the indigenous population for the use of often scarce water resources. The issue is particularly salient for industries with high usage of water, such as mining and of course, the drinks industry.

Perhaps the most well-known and best-reported incident concerned Coca-Cola's bottling plant in Kerala in Southern India. As one of the company's more recent expansions, Coca-Cola is estimated to have invested over $1bn in its Indian business between 1993 and 2004, thus contributing roughly a fifth of the entire foreign direct investment to the country. Against this backdrop, it came as quite a surprise to the company when in 2004 a High Court in the southern province of Kerala ordered the closure of a Coca-Cola bottling plant in the village of Palchimada. The ruling followed three years of campaigning by local villagers, national NGOs, and research institutes, displaying a truly multifaceted arsenal of campaign tactics, reaching from local demonstrations, sit-ins at the plant gate, and human chains, to ten-day marches between various Coke plants, nationwide 'Quit India' campaigns, and political lobbying (the Indian parliament subsequently banned the company's products from its cafeteria).

The central issue of the campaign, at least initially, was the fact that since the Kerala plant opened in 2000, groundwater levels had fallen by 25-40 feet, resulting in severe water shortages for rural neighbours of the plant. Harvests allegedly fell by 80-90% and the remaining water became undrinkable in a region where most people are extremely poor and dependent on small-scale local agriculture.

Coca-Cola, who extracted about 510,000 litres of water per day from the groundwater around the plant, initially blamed the decline in water on poor rainfalls in the region during the preceding years, and dismissed the protest as 'anti-capitalist'. Still though, the company set up a tanker service providing people around the plant with a daily supply of water. The court, however, ruled that groundwater is a public good and Coca-Cola, in the aftermath of the ruling, had to reorganize its water supply from other parts of India into the plant. Ultimately, Coca-Cola became something of a leader in water management practices. As of 2012, Coca-Cola attained water neutrality in its Indian operations, and in 2015 became the first Fortune 500 company to replenish at least 100% of the water used in its operations. Furthermore, since 1997, the company has successfully engaged in a number of projects in countries such as Angola, Ethiopia, Mozambique, Nigeria, and Rwanda, and effectively brought water supply to many places where governments hitherto had failed to deliver. Similar projects have been started by Nestlé, the beer conglomerate SABMiller, and a number of mining companies.

The increasing involvement of business in the management of global water resources has led the UN Global Compact to set up a special forum called 'The CEO Water Mandate'. Here, CEOs of many major companies, including those mentioned in this case, have committed themselves to implement sustainable water management practices in their operations.

The world of water though remains an ambiguous terrain for companies. While implementing fairly wide-ranging measures around the conservation and accessibility of water, even the best-managed companies continue to demand ever more water as their markets grow. Moreover, beverage companies have raised further criticism for their heavy investment in another increasingly contentious business, bottled water. For Nestlé, for example, its main beverage business is in bottled water, and the firm markets more than 70 brands globally, including the iconic Perrier and Vittel brands. The main ethical concerns faced by companies such as Nestlé in the marketing of bottled water centre around issues of wastefulness (it currently takes approximately three litres of water to produce one litre of bottled water), packaging, transport costs, the exploitation of non-renewable aquifers (such as the water from the Fiji Islands), and, more generally, the fact that in most developed countries where bottled water is sold, tap water is a perfectly healthy and adequate alternative.

Activists have long campaigned against the growth of the bottled water business, and some governments have begun to act. For instance, in Canada, 12 municipalities, including the City of Toronto, had initiated bans on bottled water on municipal premises by 2009. Nestlé, which has instituted a range of water conservation initiatives across its global businesses, nonetheless reacted rather aggressively to the new hard-line direction of regulators. Not only did they hire lobbyists to manipulate the municipal bans, but the firm also placed contentious advertisements in the Canadian press which raised widespread allegations of greenwash. Perhaps this was not so surprising given that among the claims panned by the critics was Nestlé's contention that 'bottled water is the most environmentally responsible consumer product in the world'! Further embarrassments ensued for the company in 2008 when a Swiss television station revealed that Nestlé had hired a security firm to spy on the NGO ATTAC, with a particular focus on a Brazilian activist who had targeted the company's bottled water operations in Brazil.

What are the ethical issues here?

Which ethical theories do you think might be help in deciding an appropriate action?

Who are the main stakeholders of beverage company Coca-Cola in this case and explain why they are?
How would you prioritize the stake holders and discuss if this should be looked at from a consequentialist or non consequentialist approach?
Describe and assess the role of Nestlé in this case in terms of Corporate Social Responsibility (CSR). (What are the benefit and the drawback)
Critically assess Nestlé's contention that 'bottled water is the most environmentally responsible consumer product in the world'!
Think of the privatized water companies in this case in terms of the 'extended view of corporate citizenship' as discussed in this chapter. What are the specific governmental roles they have taken on? Evaluate their performance from this perspective

6. How do you evaluate the growing expectations and the changing role of companies in the arena of water management? What are the consequences for accountability, transparency, and participation of stakeholders? Discuss the potential and the limits of what corporations can ultimately achieve in the business of water.