Tackling trade-related water risks

The dependence of Global North countries on water-intensive imported goods – such as food, textiles and minerals – is driving water insecurity in less developed parts of the world. At least half of the water used to produce these goods comes from areas facing moderate to severe water scarcity, mostly in the Global South. Addressing the inequity and unsustainability of this trade is urgent from both human security and supply chain perspectives. The production of traded commodities worldwide uses an estimated 30 per cent of freshwater withdrawals, and large, water-intensive export sectors often cause pollutive waste streams. In many regions, these economic activities increasingly compete with local needs, especially in the context of drought and extreme weather events. At present, there is no consumer labelling to show the effects that a given retail product has on water, and few importer-country legislative options or regulations that positively influence more sustainable water use at production sites. However, this issue is gaining attention, with attempts by actors – such as the CDP, the Taskforce on Nature-related Financial Disclosures (TNFD), and the International Sustainability Standards Board (ISSB) – to develop a global baseline for reporting on climate and nature-related risks, and new legislation covering companies operating in importer jurisdictions, both in the UK and the EU. This paper presents case studies of Morocco–EU and Malawi–UK trade, which demonstrate opportunities to boost sustainable and fair use of water in production, including company disclosures, due diligence and market access standards. For example:In the case of Morocco–EU trade, new legislation in the form of the EU’s Corporate Sustainability Reporting Directive (CSRD) requires importing companies to report on trade impacts of food, fertilizer, textiles and green hydrogen production on local water resources. The accompanying Corporate Sustainability Due Diligence Directive (CSDDD) will add potential for enforcement measures against large companies.In the case of Malawi–UK trade, the UK’s Environment Act does not specifically address water and lacks enforcement measures. Further amendments to the act could strengthen its capacity to address water scarcity in high-risk areas that produce goods such as tea, sugar, cocoa and tobacco. For major importing countries, current patterns of trade are in conflict not only with their commitments to the Sustainable Development Goals (SDGs) and climate resilience, but also with their domestic food and energy security objectives. With power dynamics between sellers and buyers being far from equal, importer countries have an opportunity to push for more sustainable approaches to water. This will require building trust with trade partners, and offering financing and capacity-building support to enable smaller producers to adhere to changes in policy. Both importers and exporters of water-intensive products share an interest in promoting multilateral action that can support a fair playing field and avoid ‘leakage’ – companies shifting production to areas with weaker water controls. World Trade Organization (WTO) initiatives can play a critical role in supporting transparency and compliance.