Water stress: Why water scarcity is becoming a global crisis
Demand for water is likely to outstrip supply over the next decade, driven by macro trends such as population growth, urbanization and climate change, which are contributing to severe water stress. By 2050, 1.9 billion people in cities may experience seasonal water shortages.1
Global water scarcity is driven by a complex mix of environmental, social and economic factors that are more interconnected than before. The issue primarily stems from the fact that less than 1% of the world's water is fit for human use, yet it must support a growing global population and rising demand from industry.
Climate-related challenges, such as extended droughts and extreme weather events, are intensifying water scarcity, while simultaneously damaging infrastructure and contaminating freshwater sources.
"The development of an El Niño from mid-June 2026 is expected to further stress some water-prone regions moving forward," explains Bowen.
"You're always going to see these pendulum swings between El Niño and La Niña phases," he says. "But what's changing is the backdrop. Climate change is amplifying the impacts of each phase."
"Climate risk goes much deeper than what you see at the surface from a location-specific event standpoint," he adds. "The downstream implications can be significant, particularly from a humanitarian standpoint when you begin to layer in vulnerability to food, water and infrastructure disruption."
Global water scarcity is driven by a complex mix of environmental, social and economic factors that are more interconnected than before.
Humans are at the center of water scarcity issues. Even where adequate resources are available, poor infrastructure, weak governance and inadequate investment in water systems can leave many communities without reliable access to clean water.
Moreover, rapid population growth and urbanization increase pressure on already-strained systems. Together, these factors create a cycle of water scarcity and depletion.
What is El Niño and how is it linked to water scarcity?
Natural cycles, such as El Niño Southern Oscillation (ENSO), are further contributing to climate extremes by altering ocean-atmosphere interactions.
El Niño typically brings warmer global temperatures, droughts in parts of Asia and Australia, and heavier rainfall in other regions, while La Niña often has the opposite effect, contributing to cooler conditions and different rainfall shifts.
The El Niño effect: Drought and supply chain disruption
Many parts of the world are experiencing more frequent and extreme heatwaves and droughts because of anthropogenic warming.
There's growing anticipation that the current El Niño could develop into one of the more powerful events in recent decades. Stronger El Niño phases are typically driven by higher ocean heat in the Pacific, which tends to push global temperatures up and increase the chances of widespread weather disruption.
What makes El Niño so impactful is how it reshapes global weather patterns. It often brings drought to regions such as parts of Africa, Asia and Australia, putting pressure on water supplies and agriculture, while other areas experience heavier rainfall and flooding.
When layered on top of already rising global temperatures, these shifts become more intense and unpredictable.
These risks are amplified when multiple regions are affected at once or when key trade routes become constrained. Lower river levels can disrupt transportation along major shipping routes like the Panama Canal.
Government policy responses like export bans or stockpiling can further distort markets, sometimes causing as much disruption as the original climate event.
Why water stress is an operational risk for many industries
Many industry sectors are vulnerable to water stress while also directly contributing to the depletion of freshwater resources.
It's not just drought-prone regions that are waking up to the realities of water scarcity. There are implications across the value chain, encompassing raw materials, suppliers, direct operations and product use.
The challenge isn't limited to direct water use. Businesses also need to understand their exposure to "virtual water" embedded in purchased goods, raw materials and traded commodities, because disruption in a water-stressed region can quickly become a supply chain problem elsewhere.
"I've worked with a number of manufacturers that rely upon the availability of water for their production," says Hugh Morris, team leader, Strategic Risk Consulting, Gallagher, RMS.
"We have seen companies install large water tanks so that they do have some contingency, if there is a mains break, for instance. It's one of those issues where companies have to think about how they keep their facilities operational if there isn't a reliable supply of water."
This is why drought can be a blind spot. Unlike sudden-onset hazards such as floods or storms, water shortages often build slowly, making them easier to underestimate until restrictions, power outages or failing supply chains begin to disrupt operations.
Water is critical for cooling equipment used in the manufacturing and energy sectors and for irrigation in agricultural production. Many regions rely on stable water levels in rivers, canals and reservoirs for transportation and energy production.
Agriculture is often the first sector to feel the impact, as shortages can disrupt planting schedules, reduce yields and threaten livestock welfare.
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Companies have to start thinking about how they keep their facilities operational if there isn't a reliable supply of water and whether they continue to be viable if there are water scarcity problems in their supply chain.
Hugh Morris, team leader, Strategic Risk Consulting, Gallagher, RMS
Why food production is vulnerable to weather and water whiplash
For agriculture, many key growing areas could see reduced yields during El Niño periods, particularly those that depend on stable monsoon patterns. This imbalance can heighten risks relating to food and water security.
Water availability plays an essential role in food production, but freshwater supplies are dwindling across many food bowl regions. There are more frequent weather extremes beyond normal seasonal variability, impacting the growing season.
One issue is "weather whiplash" — sudden shifts between prolonged periods of drought to heavy rainfall. Dry, compacted soil is unable to absorb rainwater as effectively, increasing the risk of flash flooding.
Farming methods can help alleviate water stresses moving forward and across water-stressed countries, the use of solar-powered irrigation pumps is taking off. However, the technology has longer-term sustainability implications.
"I'm in Nebraska, where a primary source of water for agriculture is the underground aquifer," says Mike Keenan, senior risk control consultant of Gallagher's National Risk Control (NRC) group. "Depletion of this aquifer due to various uses, including agriculture, poses a threat to crop production."
"To conserve water, advanced computerized irrigation systems are utilized to prevent unnecessary water usage after insufficient rainfall."
How changing land use drives freshwater contamination
Pollution contributes to water stress by rendering freshwater supplies unsafe and unusable.
Rapid urbanization and the intensification of farming are among the practices contaminating waterways and aggravating water scarcity issues.
Meanwhile, saltwater intrusion into rivers and groundwater is becoming more common due to shifting rainfall patterns and more frequent and severe droughts.
Thirsty data centers at the heart of sustainability concerns
The rapid developments in data center construction are placing a growing strain on already scarce water resources, particularly in regions facing chronic water stress. Large facilities can consume millions of liters annually, intensifying competition with local communities, agriculture and industry in areas where supply is already constrained.
Water isn't just essential for cooling, but also essential to improving the energy efficiency of data centers. It's distributed primarily through chillers, cooling towers and humidification systems.
The rapid growth — with over $100 billion earmarked for data center construction in 2026 — is raising concerns that future data center facilities could put further pressure on already stretched resources.
Case in point: Water demand is expected to quadruple by 2030 across Sub-Saharan Africa due to population growth, while the region is becoming a hub for data center investment.
It has pushed water availability and long-term sustainability to the forefront of site selection and development decisions, prompting greater scrutiny of sourcing and environmental impact.
Without due care, irresponsible use of water may lead to public backlash, reputational risk and enforced accountability.3
In many regions, there are no easy answers. Water demand is expected to quadruple by 2030 across Sub-Saharan Africa due to population growth, for instance, while at the same time, the region is becoming a hub for data center investment.
Inevitably, this creates a tension between meeting the future water needs of urban communities and the infrastructure that is essential to technological development.
"In parts of North Africa, there have been a number of consecutive drought years in recent times, which we have never seen before," says Antoine Bavandi, global head of Public Sector, Parametric & Climate Resilience Solutions, Gallagher Re.
"It's such an extreme and prolonged drought that the consequences are disrupting the entire economy, including many livelihoods within the agricultural sector. The little water that is still available is being diverted from irrigated agriculture to urban centers, resulting in waves of migration."
Ripples across the supply chain
Water scarcity is no longer a localized issue; it's a systemic risk affecting global supply chains and reshaping the global economy.
There are direct and indirect impacts on businesses arising from water shortages. Some of the secondary challenges relating to water shortages include disruptions to supply chains, heightened energy and food insecurity, and higher operational costs.
In some parts of the world, energy blackouts have become more prevalent during years of drought. As reservoirs dry up, hydroelectricity plants are unable to operate.
"Organizations are looking a little bit more carefully at their supply chain in terms of the global issues that could cause disruption," says Morris. "It's important not just to think about your suppliers' financial viability, quality control and exposure to natural perils, for instance, but also if they will continue to be viable if there are water scarcity problems."
In a world of growing climate extremes, too little and too much water can disrupt global trade. Too much water can also be an issue for transportation and logistics, resulting in floods and river currents that are too strong for vessels to navigate safely.
How innovations in cooling technology are key to decoupling water use from growth
Investments in technology can significantly reduce how much water is needed for cooling in the manufacturing, energy and technology sectors, helping businesses increase capacity without placing the same level of pressure on local water resources.
Small machine parts, such as nozzles and sprayers, can reduce water consumption. Sensors and meters, meanwhile, allow for better control over water use, optimize processes and reduce waste.
In the data center space, companies are experimenting with hybrid and dry cooling techniques, alongside closed-loop liquid cooling systems that circulate engineered fluids through sealed networks to reduce reliance on evaporative water intake.
Strategies to decouple water use from economic growth
Based on current trends, governments will also need to spend billions each year to meet the water needs of society and industry.
Strategies for reducing water use in industry will become more important, including more efficient use of water in heating and cooling processes and in the transportation of goods.
For many organizations, resilience will depend on moving from reactive drought response to proactive water stewardship.
Technology and AI can also help understand the crisis better and offer solutions such as desalination, recycling and smart water management systems.
Taking a sustainable approach to water management isn't just the right thing to do; it's critical to avoiding major global shocks.
"Ultimately, water scarcity has to be considered alongside wider sustainability imperatives," says Steve Bowen, chief science officer at Gallagher Re.
"From a protection and risk mitigation standpoint, investing in biodiversity and natural resources is very important," he adds. "It's about reintroducing some of the ecological advantages that nature provided for centuries before humans came in and disrupted that."
