Understanding the Energy-Food-Water Nexus is Crucial for Business Success

December 2, 2014

[Editor's Note: Hugh Welsh, President, DSM North America, will be speaking at The Energy-Water-Food Nexus: Risks and Opportunities for the Private Sector roundtable on December 11, in Washington. D.C.]

Recently I reached out to Hugh Welsh, President, DSM North America, part of Royal DSM, a global science based company active in health nutrition and minerals, to learn more about the company’s perspectives on the energy-water-food nexus. We discussed some of the risks the nexus presents to its business and how the company is turning these risks into viable opportunities to drive competitive advantage, enhance business models and growth strategies, and drive better environmental performance.

Jennifer Gerholdt: Why does DSM care about the energy-water-food nexus?

Hugh Welsh: The energy-water-food nexus presents material risks to DSM’s operations as well as tremendous opportunity to develop sustainable competitive advantage if we can develop new and innovative business models, products and partnerships to mitigate these risks. Risks to our value chain, reputation, regulatory compliance and license to operate, costs of inputs and disaster risks brought about by climate change all present real risk to our continuing operations. We try to find metrics to allow us to define this, develop mitigation plans and solutions as part of our core long term operational strategy and report how we are doing alongside our financial results in our integrated annual report.

Gerholdt: How is the nexus playing out in the U.S.?

Welsh: The drought of 2012 is a prime example. It was the worst drought in several decades; nearly 80% of American farms and ranches were impacted and the cost was in the tens of billions. Crops failed, feed prices went up, the cost of animal protein such as chicken swine and beef skyrocketed, consumer food prices increased in what was still a recovering economy. At the same time energy prices increased as producers had to limit and in some cases shut down operations as the availability of cooling water became a challenge; many lakes and streams ordinarily used as cooling water sources became too low or too warm to be used; energy prices went up; farm and rural communities had to dig deeper wells to find potable water for human and agricultural use. This required more energy increasing demand, which further increased price which then added to increased food prices. The interdependencies in the U.S. are clear, as is the fact that there are really no plans or material changes in policy to deal with this issue which will only become more pressing going forward. It's very Darwinian; those companies that are flexible and can evolve and adapt quickly to this changing environment will survive and prosper; those that cannot will not be around. 

Gerholdt: What progress has been made to advance solutions to the nexus that inspires you?

Welsh: One bit of progress is that this nexus is now at least recognized and discussed, and that the various stakeholders in government, academia and NGOs are beginning to see that long term solutions cannot be crafted and implemented without the involvement and participation of the private sector; although there is still much to do here. Another area of progress is the willingness of the U.S. government at times to see that regulation alone will not bring about the change that is needed; incentives to create and adapt new technologies are also required, and we see that in the renewables space.

Gerholdt: On the flip side, what’s one thing that still needs to happen to advance nexus thinking and action, and how do you think this gap can be addressed?

Welsh: There needs to be more productive engagement with the private sector on this issue; particularly with multinational companies that operate across borders and transnationally, and therefore have a vested interested in finding global solutions. I would also like to see more discussion, sharing and collaboration among private sector participants on the operations side. Too often this issue is relegated to CSR type departments in private sector organizations; it should be discussed openly with line management and a core part of any organizations strategy. These issues are happening now, the nexus is clear, there is a strong business case to do things differently to create competitive advantage if recognized early.

Gerholdt: Who are the vital partners in the nexus arena? What are examples of resources you have found helpful to better understand how nexus risks can be addressed, and replicable approaches that can be scaled?

Welsh: There are great partners to work with in this area. We have found DOE, EPA and USDA as well as various state governmental organizations to be fabulous resources as well as partners.

Gerholdt: What can we expect to see come out of DSM and/or the nexus field in general over the next 3-5 years? Where are the opportunities for businesses and communities to have the greatest impact?

Welsh: The nexus issues are key components of DSM’s long terms business strategy reflected in our public strategy document published back in 2010. Water scarcity, energy scarcity, climate change, growing population, increased urbanization, an aging population in some regions, a world growing richer, hungrier and more thirsty all lead to a new set of key growth drivers in M&A and partnerships, innovation and sustainability. You can already see this reflected in the types of deals DSM has done in the last few years, which include areas like cellulosic ethanol, where we invest or R&D and Venturing dollars in new forms of energy and production processes as well as converting to biobased feedstocks, what new products we are developing all the way down to what metrics we use to determine executive pay and bonuses such as energy and water usage, GHG emissions. All reflected in an integrated annual report. I would expect that you will see an acceleration in the execution of this strategy when we announce our new 5 year strategy next year.