Water scarcity, pollution, floods, droughts and seasonal variability in rainfall and supply threaten supply chains worldwide, with ripple effects on business continuity, consumers, food security and social stability. Yet despite the potential for disruption, only half of large companies report taking action on water risks in their supply chains. The Water Scopes 1-3 framework aims to address that by establishing a standardized approach for measuring corporate water impacts and dependencies, similar to what the Greenhouse Gas Protocol has done for climate. According to CDP, an independent global environmental disclosure platform, at least $77 billion in business value is threatened by water-related supply chain risks. For example, flooding in Slovenia in 2023 affected manufacturing facilities that supplied Volkswagen, requiring the company to cut production in Germany. From 2023 to 2024, drought in India and Thailand stunted crop growth, leading to a 9% increase in the price of sugar and confectionery in the United States.To help fill that gap, WRI — together with SCS Global Services, Pacific Institute, CEO Water Mandate and World Wildlife Fund (WWF) — will co-develop Corporate Guidance for Assessing Water Scopes 1-3 in Value Chains, creating common terminology and guidance for assessing and addressing water in the value chain. This guidance will provide a consistent foundation for water risk assessments (using tools such as WRI’s Aqueduct and WWF’s Risk Filter), corporate disclosure (to CDP, GRI, TNFD and CSDDD) and meaningful action on water stewardship. From Operations to the Entire Value Chain Companies have typically approached corporate water stewardship in their direct operations first, where they have the greatest control and visibility. Addressing risks to direct operations through efficiency, replenishment and collective action is critical for water to become a material financial risk asset for investors and stakeholders — both for a company’s business continuity and for the health of its respective river basin.But for most sectors, water impacts and opportunities tend to occur elsewhere in the value chain. Take the food and beverage sector, for instance. Because it relies on a steady supply of crops, it is heavily dependent on water in its supply chain, where the greatest impacts are likely to occur. Globally, agriculture accounts for 70% of the world’s freshwater withdrawals. For consumer goods companies — such as those producing soaps and detergents — most water use happens downstream in the value chain, during activities like bathing and cleaning, rather than manufacturing.For many companies, addressing water risks only at the operational level is insufficient compared to more powerful levers found elsewhere in the value chain. Voluntary initiatives and regulations are taking note, calling for a value chain approach to corporate sustainability reporting and target-setting. The Science Based Targets Network (SBTN), the Taskforce on Nature-Related Financial Disclosures (TNFD) and the EU’s Corporate Sustainability Reporting Directive (CSRD) all reflect growing expectations that companies account for their full value chains.Collective Action in the Value ChainTo complement important place-based collective action efforts — often focused on direct operations — companies need more transparent, verifiable collective action in the value chain. This type of collective action has the potential to drive systemic, global change by first avoiding and reducing the greatest impacts at their source, before replenishment (consistent with the water stewardship mitigation hierarchy). It requires collaborating up and down the value chain on transformative actions, such as increasing supply chain transparency, advocating for policy change and rethinking product formulation and sourcing strategies.The momentum is growing, but foundational principles and approaches remain fragmented. Unlike in the climate space, where companies have the Greenhouse Gas Protocol, companies lack standard guidance and terminology for assessing water dependencies, impacts, risks and opportunities (DIROs) across their value chains.Building the Foundation for a Standardized Approach to Water in the Value ChainWater challenges will only intensify as the impacts of climate change increase, exacerbating the need for common guidance on how companies can understand and act on water DIROs across their value chains. Holistic value chain guidance is critical for achieving resilience. Companies that consider their supply chains when conducting water risk assessments are seven times more likely to identify supply chain risks. Addressing these risks means engaging suppliers, amending procurement policies, collecting data and collaborating with other companies on actions to build supply chain resilience and mitigate financial risk. A common framework gives corporations, investors, policymakers, technology providers, academic institutions and NGOs a shared basis for evaluating corporate sustainability efforts. As companies begin planning water goals beyond 2030, now is the moment to establish how value chain water fits into broader corporate water strategies. Water Scopes 1-3 guidance aims to provide a consistent foundation for corporate water reporting and action across existing measurement, disclosure and standards frameworks. Image by the authors. This guidance aims to unlock greater and smarter action in the value chain in several ways:Providing certainty and common terminology. Standard guidance for identifying water DIROs in the value chain will enable companies, investors, value chain partners and other interested parties to align terminology and collaborate more effectively. It will also support clearer internal communications, providing sustainability staff a clear lexicon to make the internal business case with the C-suite for meaningful water stewardship effort, and to clearly make and communicate plans with plant managers, legal professionals, procurement, marketing and other teams.Increasing efficiency and lowering barriers to entry by streamlining inputs for voluntary initiatives and regulatory reporting. Without clear, well-established accounting principles, every company must ascertain what to include in their value chain reporting and may even need to calculate differently depending on the regulation or voluntary initiative. This inconsistency and lack of clarity drain critical resources from small sustainability teams, potentially preventing them from focusing on more impactful water stewardship activities.Empowering companies to prioritize resilience in their procurement practices. Understanding the greatest water DIROs in the value chain will illuminate new and bigger levers that companies can pull to reduce their risks and increase resilience in their supply chain, such as avoiding new sourcing from highly water-stressed areas or investing in regenerative and climate-smart agriculture in high-priority regions.Improving reputation with stakeholders and shareholders. Concerted efforts to assess and act on water DIROs in the value chain can strengthen relationships with customers, investors and shareholders, improving both the business’s reputation and sales.Incentivizing collaboration and transparent, verifiable collective action. If companies up and down the value chain accounted for their water DIROs and set meaningful targets accordingly, there may be a joint incentive to combine forces to cost-effectively reduce their collective impacts and meet respective targets. Enabling action in the value chain can catalyze systems change, empowering and incentivizing companies to avoid, reduce, restore, regenerate and transform water use from cradle to grave, where levers are most powerful through a company’s value chain. This holistic approach can strengthen supply chains, enhance resilience and ultimately benefit companies and their suppliers.As Water Scopes 1-3 develop, early engagement from companies and policymakers will be critical. This will ensure the guidance reflects real-life needs and be grounded in practice. If you’re interested in getting involved, reach out to Sara Walker, Director of Corporate Water Engagement, at [email protected].