Introduction
In my previous article on Water Accounting, I argued that organizations need to move beyond simply measuring water use to understanding their water position. Water accounting therefore establishes a clear picture of an organization’s current water position. It is important to determine whether the organization’s current water position provides sufficient capacity to meet its water obligations reliably over time - water solvency. In this article, I define organizational water solvency as the sustained ability to meet current and future water obligations, without creating unacceptable risks to operations, people, and the environment. The idea of water solvency is not entirely new. Earlier literature used solvency in relation to regional water balance and sustainability, while more recent work connects solvency with water bankruptcy, infrastructure performance, system obligations, governance, and financial resilience. This article presents water solvency as a practical management framework for assessing whether an organization can reliably meet its water obligations over time and under changing conditions.
Start with the Water Position
Understanding water solvency begins with knowing the organization’s water position. Water accounting provides this foundation by identifying what water enters the organization, where it comes from, how much is consumed, stored, reused, recycled, discharged, replenished, or lost, and what requirements must be sustained. This creates a clear baseline for determining whether available water resources are sufficient to support the organization’s needs. However, knowing the water position does not by itself establish water solvency. An organization may appear to have enough water while depending on unreliable sources, aging infrastructure, limited treatment capacity, or water supplies exposed to drought and regulatory restrictions. The water position must therefore be examined in terms of both availability and reliability. Water accounting establishes where the organization stands today; water solvency builds on that information to determine whether the organization can continue meeting its water obligations reliably over time and under changing conditions.
Define Water Obligations
One of the most important shifts related to water solvency is understanding water obligations. Unlike water demand, water obligations represent the requirements the organization must be capable of meeting to continue operating responsibly and reliably. These requirements may include minimum operational requirements, regulatory conditions, environmental requirements, contractual commitments, essential community responsibilities where applicable, water-quality requirements, and resilience provisions for disruptions. This distinction prevents organizations from assuming that reducing consumption automatically produces a water-secure position. For instance, a utility cannot simply reduce supply below essential service requirements because a drought occurs. Similarly, an industrial facility may have environmental discharge or flow requirements that constrain how it can use available water. Defining obligations forces organizations to determine which water requirements are essential, flexible, legally or socially constrained, and which could become binding under future conditions. So, water solvency begins when organizational obligations are visible.
Measure Reliable Water Capacity
The other component of the water solvency equation is reliable water capacity. Organizations frequently describe water availability using permits, historical withdrawals, source capacity, or contractual allocations. However, theoretical or inaccurate water availability can create false confidence and misuse. For instance, a permitted groundwater withdrawal does not guarantee that an aquifer will reliably support that volume, and a river beside a factory does not guarantee usable supply if water quality deteriorates. Reliable capacity should therefore reflect the water that an organization can reasonably expect to access and use after considering source reliability, seasonal variability, water quality, infrastructure condition, treatment capacity, legal restrictions, competing demands, environmental constraints, and other material risks.
This leads to a useful management principle: Do not confuse water presence with water capacity. Water becomes strategically useful only when the organization can access it, obtain the required quality, move it through functioning infrastructure, and do so within regulatory, environmental, financial, and operational constraints.
Establish a Water Solvency Ratio
To operationalize the concept, I propose a Water Solvency Ratio (WSR), which compares an entity’s reliable water capacity with its total water obligations over a defined period.
Water Solvency Ratio (WSR) = Reliable Water Capacity ÷ Total Water Obligations
The WSR provides a simple indicator of whether available and usable water capacity is sufficient to meet operational, regulatory, environmental, contractual, and resilience requirements. A ratio above 1.0 indicates a positive solvency margin, a ratio of 1.0 indicates that capacity equals obligations with no nominal buffer, and a ratio below 1.0 signals a potential water-solvency deficit. Because water conditions vary across sectors, locations, and systems, WSR values should be considered a guide. It is important to interpret WSR alongside source reliability, water quality, infrastructure condition, operational criticality, uncertainty, and scenario-based stress testing. For example, if an organization has a reliable water capacity of 12 million m³ per year and total water obligations of 10 million m³ per year, its WSR = 12 ÷ 10 = 1.2. A WSR of 1.2 means the organization has 20% more reliable water capacity than its current obligations, indicating a positive water-solvency margin.
Stress -Test the Water Position
A solvency assessment becomes strategically valuable when organizations know what happens when conditions change. A Water Solvency Ratio provides a snapshot of an organization’s position, but system conditions rarely remain constant. Stress testing examines whether the defined water position can withstand plausible disruptions such as drought, source contamination, infrastructure failure, regulatory restrictions, rising demand, energy interruptions, or climate variability. For example, an organization with a WSR of 1.2 may appear solvent under normal conditions; however, a 25% reduction in reliable water capacity could push the ratio below 1.0, creating a potential solvency deficit. Stress testing allows organizations to model these scenarios before they become operational crises and identify potential vulnerabilities. Stress testing the water position can also reveal which interventions, such as reducing losses, increasing reuse, diversifying sources, expanding storage, and upgrading treatment capacity, would improve the organization’s position. Thus, water solvency needs to be evaluated against the conditions the organization may reasonably face in the future.
Water Solvency as a System Issue
Water solvency is not determined by water volume alone; it depends on the strength of the entire system that makes water available and usable. The WSR provides an important measure of the relationship between reliable water capacity and total water obligations, but the ratio alone cannot capture all the conditions that determine whether an organization can sustain its water position. An organization may appear to have sufficient water yet remain vulnerable if that water cannot be reliably accessed, treated, stored, delivered, financed, or managed. A credible Water Solvency Assessment should therefore examine the broader system supporting the WSR, including water availability and quality, source reliability, infrastructure capacity, financial capacity, operational performance, environmental requirements, and governance. Weakness in any of these areas can reduce the amount of water that can realistically be considered reliable capacity. Water accounting establishes the water position, the WSR measures reliable capacity against obligations, and the Water Solvency Assessment determines whether the overall system can sustain that position over time.
Use Water Solvency as a Decision Tool
Water solvency should function as a decision framework, and its value lies in helping leaders determine whether an organization can reliably meet its water obligations and identify the actions needed to strengthen its position. The WSR provides a measurable starting point, while system assessment and stress testing reveal the risks and vulnerabilities behind the number. Together, these insights can guide decisions about infrastructure investment, operational efficiency, source diversification, water reuse, expansion, risk management, and long-term strategy. A possible management pathway begins with water accounting to establish the organization’s water position, followed by calculating the WSR to determine whether reliable water capacity is sufficient to meet its obligations. A system assessment can then identify weaknesses that could affect the water position, followed by stress testing to determine how the position may change under different conditions. The findings can then be translated into specific, measurable management actions. This progression gives organizations a practical way to understand not only whether enough water is available today, but also whether they have the capacity and supporting systems to meet their water obligations reliably over time.
When system conditions change, will your organization have the capacity to meet its water obligations and remain water solvent?
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David Tsetse, Ph.D. | SiBI Institute
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