Despite the difficulties that beset the multilateral system, action is still possible to improve sustainable water use in international supply chains. Options include expanding plurilateral discussions, exploiting technical forums on narrow areas of mutual interest, and using compliance rules in public procurement to support best practice.
The geopolitical scenarios outlined in Chapter 3 will in part determine how effective trade-related mechanisms are at mitigating water risks. In a context of intensified strategic rivalry, weakening multilateral institutions and growing pressures on regulatory frameworks, broad-based reforms are unlikely to advance. However, targeted interventions – within existing WTO committees, and through plurilateral groupings, bilateral agreements and supply-chain due diligence frameworks – remain politically realistic pathways to strengthening the visibility and management of water risks embedded in global trade.
Pragmatically, the key is to ensure such interventions are compatible, to the extent possible, with countries’ sovereign agendas around securing supplies of vital goods. While mitigating water risks, as mentioned, does far more than just benefit the environment and local communities, committed political and corporate action is nonetheless more likely where such measures visibly and explicitly reinforce supply-chain resilience and security.
Policy recommendations
To this end, this chapter presents recommendations in 10 principal areas for increasing cooperation on sustainable water use in supply chains. Our recommendations target a combination of governments, policymakers, international institutions, corporations, financial institutions and CSOs. All of these constituencies have roles to play – individually and collaboratively – in addressing the challenges this paper has outlined. The measures we propose are as follows:
1. Expand plurilateral trade discussions such as the TESSD
Plurilateral trade discussions should explicitly address, through relevant committees, the trade of embedded water. One possibility is to expand existing initiatives – involving smaller groups of committed WTO members – that have been established to further discussion amid the lack of progress on binding agreements on trade and the environment at the WTO. These arrangements include the Trade and Environmental Sustainability Structured Discussions (TESSD), which provide a platform for discussing (a) trade-related environment and climate measures and (b) best practice for aligning trade with environmental sustainability. TESSD participants have recently begun to explore water issues, and a related environmental goods and services (EGS) working group discussed water supply and wastewater management at meetings in 2024.
Progress within the TESSD’s EGS working group on water issues would support further multilateral action. This could enable countries to identify consensus-based approaches for removing barriers to the adoption of technologies that can improve sustainable use of water in the production of traded goods. Progress could also serve as a basis for addressing risks related to embedded water in global supply chains in WTO-compatible ways.
2. Leverage multilateral WTO technical committees and processes
The founding principles of the WTO allow consideration of environmental issues such as water use in setting trade rules. Article XX of the General Agreement on Tariffs and Trade (GATT) permits tailored measures, such as standards and testing of products, where these are necessary to protect human, animal or plant life or to conserve ‘exhaustible natural resources’, including freshwater. However, in the current geopolitical environment, the WTO is gridlocked and any progress on rules and standards is slow. Competitiveness concerns, accusations of ‘green protectionism’ and great power rivalry limit the scope for new rule-making.
To address this, governments could promote more sustainable water use through channels such as the WTO’s Committee on Trade and Environment (CTE). While progress has been limited due to fears of green protectionism, specific technical discussions are still possible. These are most viable when focused on liberalizing trade in a narrow set of water-relevant technologies – such as precision irrigation, wastewater treatment and monitoring systems – where there is shared interest in reducing supply-chain vulnerability and where geopolitical sensitivities are low.
There is also potential to integrate water considerations into the WTO’s Technical Barriers to Trade (TBT) discussions. The aim of these discussions is to remove tariffs and quotas, thereby allowing wider access to water-related technologies that can improve water management and reduce water use in the production of traded goods. However, negotiations on so-called ‘environmental goods’ – which can include wastewater management and water treatment technologies – stalled in 2016 and have not been restarted. The negotiations were initiated with the rationale that lowering trade-related barriers can help countries to deal with water scarcity. But geopolitical tensions and the limited capacity of many low-income countries impeded engagement with the TBT process.
That said, there remains potential to revive cooperation through the TBT Committee (which oversees the WTO’s TBT Agreement) and/or plurilateral mechanisms, particularly where a small group of countries shares exposure to water risk in specific value chains. The TBT Agreement also encourages members to use international standards and support developing-country compliance, a principle that could be operationalized for water treatment, monitoring and circular water-use technologies.
3. Strengthen water provisions in existing and future trade agreements
Bilateral and regional trade agreements increasingly include sustainability provisions, albeit with limited and variable coverage of water use. The political space for ambitious new provisions is constrained by current geopolitical dynamics. However, there remains scope for trading partners to strengthen explicit virtual water provisions in the environmental chapters of existing and future bilateral and regional trade agreements.
There remains scope for trading partners to strengthen explicit virtual water provisions in the environmental chapters of existing and future bilateral and regional trade agreements.
For instance, the EU has demonstrated an interest in including sustainability provisions in its trade agreements. Its required trade and sustainable development chapters and sustainability impact assessments (SIAs) could, in principle, offer a route to integrating upstream water risks and impacts. New SIAs should propose measures to deal with identified water risks, as was the case in the 2022 UK–New Zealand free-trade agreement (FTA), which incorporated dispute settlement provisions on environmental issues, including those relevant to water such as forestry and fisheries.
However, SIAs often omit key sectors for water sustainability such as agriculture. In addition, policies need to be enforced to drive real change in practice, otherwise there is little point in having the provision in the first place. The UK is increasingly incorporating environmental stipulations into its post-Brexit trade deals, though the strength and enforceability of these provisions remain uneven.
4. Enhance support for supply-chain due diligence regulations
In addition to international trade rules established with or governed by the WTO, in recent years a growing number of trade-related due diligence measures have been introduced to support sustainability. These mechanisms remain important tools, even as geopolitical pressures reshape their scope and ambition.
The EU, for example, has developed a number of regulations as part of the European Green Deal (see also Chapter 3). These include the CSRD, CSDDD, the Regulation on Deforestation-Free Products (EUDR) and the EU Sustainable Batteries Regulation. These frameworks provide potential leverage on companies to address water risk throughout their supply chains, but the effectiveness of such mechanisms is increasingly restricted by political pushback and regulatory recalibration.
Relevant EU supply-chain regulations still serve as an important framework, nonetheless. They have the potential to increase recognition of the role of embedded water in international trade. They stipulate that significant water impacts must be reported. However, the weakening of the European Sustainability Reporting Standards has made water reporting voluntary unless companies deem it necessary, raising risks of inconsistency and selective disclosure.
The EUDR requires importers of key commodities into the EU to prove compliance with country-of-origin laws, including human rights provisions. As deforestation is directly linked to reduced water security through groundwater depletion and negative impacts on flood prevention and erosion control, compliance with the EUDR could indirectly improve water sustainability, especially in regions where deforestation drives hydrological stress. The EU Sustainable Batteries Regulation requires OECD-aligned due diligence in relation to the supply of minerals from high-risk regions, and covers environmental risks that include water impacts from extraction and processing.
While the EU is leading the way on sustainability due diligence regulation, other countries including China, Japan and India are also exploring the development of regulations. However, some countries are concerned that unilateral approaches, whether promoted by one country or a small group of countries, could fail to take on board different perspectives. An initiative launched by the Brazilian government when it hosted the COP30 climate negotiations in Belém in November 2025 could help to address some of these tensions. The initiative, called the Integrated Forum on Climate Change and Trade (IFCCT), is being promoted as a new, international ‘non-negotiating’ platform. It is designed to bring together government officials from trade and climate domains to bridge the gap between WTO rules and climate change goals. By addressing the intersection of trade and climate policy, the IFCCT could indirectly influence how embedded water is managed and tracked in global supply chains.
5. Leverage national and international standards
International standards can support consensus where there is fragmentation and divergence in understanding across jurisdictions, by providing shared reference frameworks for alignment and conformity in approach. This can then allow for a combination of national and local interpretations of good practice in water use and management to shape context-specific definitions of desirable approaches. One possibility is that governments could regulate the trade of goods to ensure fair and sustainable water usage by referencing international standards that are deemed to be relevant.
Jurisdictional approaches to standards and assurance – particularly those that assess how effectively water is governed at catchment, basin or national scale – require further exploration. However, a limitation is that operationalizing jurisdictional approaches depends on sufficiently robust traceability to the basin level, which has not yet been achieved. The catchment-level context is particularly crucial for jurisdictional approaches; the use of standards can support geography-based assessments of traded products by attaching catchment-level water outcomes (at the point of production) to products as an assessed attribute. New standards should complement existing standards that are widely considered to be good practice, such as the Alliance for Water Stewardship (AWS) Water Stewardship Standard (current version 3.0). It serves as a framework for companies to act on water risks, and provides an understanding of the common challenges faced by stakeholders sharing water resources.
Other common product standards that incorporate requirements for fair water usage could also be used to address water sustainability in trade. For example, standards set by the International Organization for Standardization (ISO) are recognized as removing technical barriers to trade, and for making processes, products and services compatible across borders. The development of ISO standards relies on consensus-based processes; there are currently 175 national standards bodies that can contribute through technical committees to develop and agree ISO standards. Within the WTO’s TBT Committee, there is a higher focus on product standards, as opposed to other standards (e.g. management system standards), as these directly address traded goods.
However, there is currently no agreed framework for accounting for and determining when a product’s water impacts can be treated as ‘trade-relevant’ in the same way that greenhouse gas emissions are set out under the Greenhouse Gas Protocol. Because water impacts are inherently context-specific, the water impacts of a given set of practices in one catchment cannot be assumed to be comparable to those in another. This makes the development of indirect water use across an organization’s value chain difficult to define and quantify, making fair water footprints conceptually challenging to scale. This is an area that requires continued exploration. A recently launched process to co-develop Corporate Guidance for Assessing Water Scopes 1–3 in Value Chains, creating common terminology and guidance for assessing and addressing water in the value chain, holds promise in this regard.
Existing standards, such as ISO 14046:2014 on water footprints, provide a foundation for the development of comprehensive oversight by considering upstream and downstream processes within defined system boundaries (i.e. establishing the scope to be considered in the assessment). But this approach does not resolve the issue of cross-catchment comparability.
6. Align public procurement with water sustainability goals
Where clear policy objectives exist throughout the governance system, public procurement can provide an opportunity to promote sustainability requirements and monitor compliance. In OECD countries, government procurement accounts for up to 20 per cent of GDP, with some governments using procurement to decarbonize supply chains. An example of this is the UK’s Procurement Policy Note system, under which government departments, executive agencies and public sector bodies procuring goods and/or services with an expected annual value of over £5 million have needed, since 2021, to show evidence of commitment to achieving net zero by 2050 in their UK operations.
Governments could set conditions for procurement that meet well-defined and relevant water standards.
Similar measures could be explored for water use. Governments could set conditions for procurement that meet well-defined and relevant water standards. Conditions could, for instance, require suppliers bidding for government contracts to publish details of their water management practices and organizational commitment to water sustainability. The Global Commission on the Economics of Water (GCEW) has noted that public procurement presents an opportunity to explore demand-side policies. Governments could require water footprint disclosures from vendors, only buying from those who meet sustainability standards, or could prioritize cutting-edge water-saving technology such as water-recycling systems.
However, as product standards alone can be a weak proxy for sustainability, it is important to link these requirements to where, not just how, products are made. Here, WTO principles of non-discrimination can be explored: for instance, using tiered obligations on importers and targeted incentives.
7. Improve cross-government and inter-government regulatory cooperation
Governments should recognize water stress abroad (vis-à-vis supply chains for food, raw materials and critical manufactured goods) as structural risks to their own economic development, food security and trade strategies. Acting on these risks, and investing in water resilience broadly, is an issue of national self-interest that requires a joined-up approach to policy development across government. It entails bringing together finance, environment, trade and relevant sector ministries (e.g. for agriculture or industrial development).
In addition to cooperation between domestic government agencies and departments, multilateral trade-related initiatives such as the IFCCT (described above) offer a forum for consumer- and producer-country governments to build consensus on trade-related measures on embedded water.
Food security is increasingly a strategic vulnerability for states. The UK government should set an example to similar countries with significant external water footprints by setting mandatory traceability and data standards for international sourcing (e.g. geolocation of production volumes to production landscape/basin), requiring aggregated reporting to assess system-level exposure and intervening where risks arise. Consumer governments, with relevant national industry partners, have a major role to play in managing demand for food in ways that are appropriate for national and regional contexts.
For producer and consumer governments, where there are significant trade flows of embedded water (e.g. from Spain to the UK for fruits and vegetables), and where there is interest to collaborate bilaterally, alignment can take place through the mutual endorsement of principles such as those in the Declaration for Fair Water Footprints. Alliances can also be cultivated through national initiatives taken by a producer or consumer country. In the UK, implementation of the WRAP Water Roadmap should be strengthened in relation to food and drink supply chains, with joint programmes of work specifying the action needed where risks have been identified.
Where there is interest but perhaps not the capacity to cooperate bilaterally, consumer countries should provide compliance support to producer countries that seek to enact regulations on sustainable water use. This is important for low-income, water-stressed producer countries that might otherwise respond to tighter regulation by redirecting their exports to markets with less stringent sustainability requirements – a shift that would result in further environmental damage domestically and potentially interrupt the supply of critical materials and goods in consumer countries.
Research also indicates that the burden of compliance costs falls most on primary producers. Joint research through national universities and institutions, for instance using the OECD’s ‘Co-operative Research Programme: Sustainable Agriculture and Food Systems’, could support more informed policy decisions by public sector actors. Other sectoral partners (e.g. agriculture and water operators, as well as national or local CSOs) could join capacity-building efforts to transfer innovations and technology and share best practice.
In recognition of the geopolitical and environmental risks of dependency for critical inputs or supplies on states that are experiencing water stress, governments should develop regulation to boost their own national resilience and diversify the supplies of critical raw materials. For example, the EU’s Critical Raw Materials Act (2023) stipulates that no more than 65 per cent of any key raw material should come from any single country. Such regulations could lead to less concentrated water stress hotspots.
By including virtual water in wider natural resource strategies, governments will be able to make more informed decisions, better assess hidden water dependencies embedded in trade and production systems, strengthen resource security planning, and anticipate cross-border water risks. Attention should focus, in particular, on significant international flows of virtual water, so that policymakers can identify hotspots of water use associated with the production of raw materials and goods. Virtual water should be part of the agenda at the International Resources Panel, through its Global Resources Outlook (GRO); and for any potential International Materials Agency, the establishment of which is increasingly being called for as a means of addressing concerns over rising global competition for critical minerals.
8. Adopt and scale supply-chain best practice at business level
Corporations should implement requirements around water availability, basin-level stress and local governance capacity into their procurement, supplier selection and investment decisions. By doing so, they can anticipate production disruptions, evaluate alternative sourcing options where needed, and strengthen long-term supply-chain resilience.
To achieve this, companies should ensure the traceability of the materials they use and treat supply chains as a means of leverage for promoting collective water stewardship. By coordinating with suppliers and local communities – including through co-financing of shared infrastructure, monitoring systems and ecosystem restoration – companies can reduce basin-level risks which they would be unable to address alone. Coalitions of buyers, producers and CSOs that are aligned on the issues could help to offset the effects of geopolitical fragmentation by developing practical methods between themselves to address water risks collectively and improve basin-level governance.
It is important that companies avoid opportunistic strategies that may worsen water impacts elsewhere.
It is important that companies avoid opportunistic strategies that may worsen water impacts elsewhere. While such strategies may secure short-term supply, they are likely to heighten local conflict in producer countries, undermine ecosystem health in those countries, and also erode the long-term operational resilience of the firms involved. The most environmentally and economically sustainable approach for companies is to pursue shared-benefit water strategies that respect both other water stakeholders and ecological boundaries.
Companies can offer training, financial support and technological assistance to help suppliers meet due diligence requirements and avoid exclusion from global value chains, and to strengthen upstream resilience where governance capacity is weak. Public reporting of water withdrawals, wastewater discharges, and broader water dependencies and impacts along the value chain would improve investor confidence, enable better risk evaluation and provide a model for good practice in transparency.
Companies can also support public sector efforts to align with national or regional water resilience strategies and targets. Where producer-country governments have developed water resilience plans or water allocation reforms, companies should harmonize their own operations with government practice.
9. Promote disclosure of water risks across financial portfolios
Financial institutions can improve the resilience of their investment portfolios by explicitly treating water stress as a material factor in financial analysis and decision-making. Integrating water risk and resilience metrics into credit assessments, loan terms and risk-pricing models would enable financial institutions to anticipate disruptions in exposed sectors and strengthen portfolio-wide resilience. It may also be helpful to integrate metrics on water stress into scenario analysis, stress testing and prudential supervision.
By engaging the companies that populate their portfolios – particularly in high-impact, high-risk sectors – financial institutions can use environmental stewardship to raise investor expectations of best practice in water-intensive value chains. This could support improved water governance and resilience outcomes, as well as materially strengthening investment risk mitigation.
Financial institutions can also support compliance and capacity-building for producers in water-stressed, low-income regions. Providing transition finance, blended-finance instruments and technical assistance could help producers meet due diligence requirements and avoid exclusion from global markets; this could strengthen upstream resilience where governance capacity is weak. Options to achieve this could include financing wastewater treatment, water-recycling technologies, circular water-use systems and catchment-level resilience projects; such measures could help to reduce systemic water risk in producer regions and protect the long-term financial performance of investments.
Financial institutions can also promote the disclosure of basin-level risks, water dependencies and mitigation strategies to improve the consistency and reliability of financial analysis, risk evaluation and market information.
10. Use CSOs for evidence-building, compliance monitoring and community inclusion
The Glasgow Declaration for Fair Water Footprints provides an opportunity for civil society organizations (CSOs) working on water security and social justice to gain access to technical and peer support from other parties to the underlying initiative. By signing up to the declaration, CSOs could gain a role in coalition-building at the national and local levels, and would more easily be able to demonstrate what is required for a ‘just transition’ to water security.
By providing evidence, monitoring operations and supporting inclusive stakeholder engagement, CSOs can help to connect understanding of upstream impacts with downstream decision-making. Special attention should be given to marginalized groups such as women, people with disabilities, and ethnic minorities. CSOs can thereby promote mechanisms that encourage a ‘race to the top’ in terms of sound water management practices and accountability. Specific work in this area could involve bringing legal cases, leveraging OECD complaints procedures, or using frameworks such as the Access to Justice in Environmental Matters to support inclusion of affected communities. These frameworks enable non-governmental organizations and members of the public to challenge decisions or omissions – whether by public authorities or private entities – that violate environmental laws. Grounded in the Aarhus Convention, this engagement ensures fair, timely and affordable legal review, aiming to protect human health and the environment through enforceable legal mechanisms.
