While the carbon dioxide emissions of China’s manufacturers may receive international attention, water pollution and scarcity hit much closer to home. Local governments, communities, and consumers in China are putting more pressure on factories to clean up their waste streams and use less water.

Local governments have been known for spotty enforcement of environmental requirements, but in the last few years, enforcement is becoming more stringent. For example, “key polluters” are required to install 24-hour monitoring systems with water-quality data feeds to local environmental agencies. In addition, gradual expansion and implementation of the 2008 environmental information disclosure measures has given the public more access to information about companies’ contributions to pollution in local watersheds.

As more information becomes available, NGOs are using it to spur changes to company practices. The Beijing-based NGO Institute of Public and Environmental Affairs (IPE) has compiled an enormous database of 90,000 environmental violations that can be browsed by location or by specific company names. IPE campaigns directed at major companies, in particular the information and communications technology sector, have used the database to demand that those firms take responsibility for ensuring that their supply networks are not responsible for illegal environmental pollution.

A similar campaign was targeted at Chinese consumers. In 2010, a coalition of Chinese NGOs (including IPE) selected 20 well-known products that could be linked to specific violations in the IPE database, and, in partnership with popular web portal Sohu.com, launched the Green Choice website, urging a boycott of those products.

Meanwhile, Greenpeace gathered its own data from laboratory testing of discharge pipes and textile products, and used it to publish two “Dirty Laundry” reports on water pollution in China. The first report linked several brands to Chinese supplier facilities that it found to be releasing persistent hazardous chemicals into local watersheds. The second report released the results of tests Greenpeace conducted to determine whether hazardous chemicals are in the final products of popular brands. As part of Greenpeace’s “Detox Challenge” campaign, the reports call for international brands and governments to work toward eliminating hazardous chemicals from the textile and footwear supply chain.

These campaigns highlight the challenge of ensuring sustainable performance in today’s complex global supply chains. An increased focus on mitigating the environmental impacts of their supply chains, along with a growing awareness of the potential reputation risks of being associated with polluting factories in China, has spurred companies to further investigate their supply networks to understand the extent of the problem. And as they begin to address more systemic issues—such as supplier chemical use and wastewater discharge—companies are increasingly engaging in collaborative approaches.

Several major apparel and footwear brands, including adidas Group, C&A, H&M, Li Ning, Nike, and Puma, have responded to Greenpeace’s “Detox Challenge” by issuing individual commitments to addressing hazardous chemicals in their supply chains as well as a “Joint Roadmap Toward Zero Discharge of Hazardous Chemicals,” which is currently in its consultation phase.

Meeting Standards for Quality

Proactive management of water-pollution risks in China’s supply chains is not without its challenges. Local legal standards can be complex, varying by industry and location, and water-quality requirements may not be easily comparable to global standards set out by companies in supplier codes of conduct. In response, BSR’s Sustainable Water Group has supported the development and implementation of global water quality guidelines in line with Chinese laws and international norms. By using consistent standards, multiple apparel companies have established a uniform expectation of performance for textile mills and laundries.

But even when standards and legal requirements are clear, some problems make it seem impossible for suppliers to meet all requirements and obtain the necessary permits. For instance, factories built long before the existence of modern environmental protection laws may struggle with requirements for specific infrastructure that essentially require the construction of a new site. And in places where government bodies have decided to limit the growth of certain industries, a facility in technical compliance with all regulations may be denied the required permits due to political agendas.

Finally, many factories in China simply have trouble finding a reputable company that can test their wastewater against all the water-quality parameters required by their customers. For example, while biochemical oxygen demand, chemical oxygen demand, and pH are commonly tested, most testing facilities in China do not have the capacity to provide reliable, cost-effective tests for specific chemical constituents such as cobalt and zinc.

Managing for Scarcity

In addition to the expectation that global companies take responsibility for suppliers’ water pollution, there is the issue of how to manage for current and future water scarcity. China has some of the highest population densities and lowest per-capita water resources in the world. Rapid growth in both industrial consumption and municipal use is increasingly straining the water infrastructure, despite China’s massive investments in water-diversion projects. Water is channeled to Beijing instead of to rice farmers in nearby Hebei Province, and manufacturers in northern China are warned to limit their daily water intake. For water-intensive processes such as textile dyeing and semiconductor manufacturing, local water availability is a significant resource risk.

Thus, an emphasis on water efficiency, conservation, and reuse has become an important part of leading supplier-management programs. In the apparel industry, the Natural Resources Defense Council’s Responsible Sourcing Initiative is working with leading companies to identify best practices in water conservation in textile mills. And BSR is currently working with several companies to conduct pilot studies to identify opportunities for water conservation and reuse in laundry facilities. In other industries, beverage companies and semiconductor manufacturers operating in China have made process improvements and installed intensive water-treatment facilities to reduce the amount of water needed per unit of product.

The New Reality

Water-management initiatives are essential for addressing both the physical reality of water scarcity and the changing political context. National government agencies are working to reduce water pollution and rationalize water use, and as these initiatives eventually translate into regional and local implementation, companies will be faced with a new set of regulatory and political constraints on resource availability. In this context, there are no guarantees that companies or their suppliers will have unlimited access to water, especially in water-scarce regions. With so many competing users—including large residential populations—industrial operations that can demonstrate their commitment to water efficiency are in a much better position to obtain access to water resources.

The dual water issues of pollution and scarcity are increasingly making their way onto the corporate agenda because of the risk of potential supply chain disruptions, operational costs, and reputation damage. An effective understanding and response to these risks is now becoming just another part of successful management of supply chains in China.

Note: A version of this article first appeared in Inside Supply Management magazine. Copied with permission from the publisher, Institute for Supply Management, “Water Concerns in China” by Laura Ediger and Ryan Flaherty, Inside Supply Management, June/July 2011.”