What is Water Stress?

What is Water Stress?

Water stress describes the condition in which the demand for freshwater in a given region approaches or exceeds the available sustainable supply, or where poor water quality restricts its use. The most widely used metric—the Falkenmark Water Stress Indicator—defines stress as occurring when per capita renewable freshwater availability falls below 1,700 cubic meters per year, with scarcity below 1,000 and absolute scarcity below 500. More nuanced indices, such as the World Resources Institute's Aqueduct Water Risk Atlas, incorporate factors including seasonal variability, groundwater depletion, drought risk, and upstream storage capacity to provide a more complete picture.

Why It Matters

Water stress is no longer a problem confined to arid regions. The World Resources Institute estimates that 25 countries—home to 25% of the global population—face extremely high baseline water stress, withdrawing more than 80% of available supply annually. An additional 25 countries face high stress. By 2050, the number of people living in water-stressed regions is projected to reach 5.7 billion, up from approximately 3.6 billion today, driven by population growth, economic development, and climate change.

The economic consequences are substantial. The World Bank estimates that water scarcity, exacerbated by climate change, could reduce GDP growth by up to 6% in the most affected regions by 2050. Agriculture, which accounts for 70% of global freshwater withdrawals, is the sector most immediately impacted—but manufacturing, energy production, and the technology sector are increasingly exposed. Taiwan's 2021 drought forced semiconductor manufacturers to truck in water to maintain production at fabrication plants, highlighting the vulnerability of even high-value industries to water stress.

Corporate water risk has moved from the periphery to the center of ESG analysis. The CDP Water Security questionnaire now covers companies representing over $20 trillion in market capitalization, and major institutional investors explicitly incorporate water stress into portfolio risk assessments. Companies operating in water-stressed basins face regulatory constraints on withdrawal permits, rising water costs, supply disruption risk, and reputational exposure from competing with communities for scarce resources.

Climate change amplifies water stress through multiple mechanisms. Higher temperatures increase evaporative demand, reducing effective supply. Glacial retreat eliminates natural storage that historically sustained dry-season river flows—the Hindu Kush Himalayan glaciers, which provide water to 1.65 billion people, could lose two-thirds of their ice by 2100 under high-emission scenarios. Shifting precipitation patterns concentrate rainfall into fewer, more intense events, increasing flood risk while paradoxically reducing the reliable supply that ecosystems and economies depend on.

How It Works / Key Components

Water stress is fundamentally a supply-demand imbalance mediated by infrastructure, governance, and economic factors. On the supply side, renewable freshwater is constrained by precipitation, river flows, groundwater recharge, and storage capacity (both natural and engineered). Climate variability introduces significant year-to-year and seasonal fluctuation—California's precipitation ranges from 50% below to 200% above average, making supply planning exceptionally challenging.

Demand is driven by population, economic activity, technology, and policy. Agricultural irrigation dominates global withdrawals, but the mix varies enormously by region: agriculture accounts for 90% of withdrawals in South Asia but less than 40% in Europe. Municipal demand typically ranges from 100–500 liters per capita per day, depending on climate, wealth, pricing, and conservation efforts. Industrial demand is highly sector-specific—a semiconductor fab uses 10–30 million gallons per day, while a data center may require 1–5 million gallons for cooling.

Water stress indicators capture different dimensions of the problem. Baseline water stress measures the ratio of total withdrawals to available supply. Interannual and seasonal variability indicate how much supply fluctuates. Drought risk measures the probability and severity of below-normal water availability. Groundwater stress compares extraction to recharge. Regulatory and reputational risk assess governance capacity and stakeholder competition. A comprehensive water risk assessment examines all these dimensions in the context of specific operations, supply chains, and investment portfolios.

Responses to water stress span efficiency, diversification, governance, and demand management. Efficiency measures—drip irrigation, industrial water recycling, leak reduction—can significantly reduce demand. Supply diversification through desalination, water reuse, and managed aquifer recharge reduces dependence on climate-vulnerable sources. Water pricing that reflects true scarcity costs incentivizes conservation and efficient allocation. And transboundary governance frameworks—essential for the 60% of global freshwater that flows across international borders—can prevent zero-sum competition and enable cooperative management.

Council Fire's Approach

Council Fire helps organizations assess, manage, and adapt to water stress across operations, supply chains, and investment portfolios. Our approach integrates physical water risk analysis with regulatory, reputational, and financial risk dimensions—enabling clients to make informed decisions about facility siting, supply diversification, efficiency investments, and stakeholder engagement. We connect water stress management to broader climate resilience strategy, recognizing that water is often the primary pathway through which climate change impacts businesses and communities.

Frequently Asked Questions

How can a company assess its water stress exposure?

Start with the World Resources Institute's Aqueduct Water Risk Atlas, which provides basin-level water stress data globally—it is free and covers baseline stress, future projections, and multiple risk dimensions. Overlay your operational locations and key supply chain sites to identify hotspots. For deeper analysis, engage with local water authorities and hydrogeological consultants to understand sub-basin conditions that global datasets may miss. CDP Water Security provides a structured disclosure framework that guides comprehensive water risk assessment. Leading companies conduct scenario analysis under multiple climate and development pathways, stress-testing their operations against projected water availability through 2030, 2040, and 2050.

What is the difference between water stress, water scarcity, and water risk?

Water stress refers to the ratio of water demand to available supply—a physical measure of competition for water resources. Water scarcity is a broader concept encompassing both physical scarcity (insufficient water) and economic scarcity (insufficient infrastructure to access available water). Water risk is the broadest term, encompassing the probability and consequence of water-related problems for a specific entity, including physical supply risk, regulatory risk, reputational risk, and financial risk. A company in a water-stressed basin may face low water risk if it has secure supply contracts, efficient operations, and strong stakeholder relationships—or high risk if it depends on vulnerable sources and operates without community support.

Which industries are most vulnerable to water stress?

Agriculture is the most water-intensive and exposed sector globally, but vulnerability extends far beyond farming. Semiconductor manufacturing requires ultra-pure water and cannot operate during supply interruptions. Thermal power generation depends on cooling water—droughts have forced plant curtailments in France, India, and the United States. Mining operations in water-stressed regions face mounting opposition from communities competing for the same supply. Textiles and apparel manufacturing consume enormous volumes through dyeing and finishing processes, predominantly in water-stressed Asian basins. The food and beverage sector faces both operational water risk and agricultural supply chain risk. Even data centers, historically considered low-water-use facilities, are drawing scrutiny as hyperscale operators concentrate cooling demand in arid regions.