Private Sector Financing for Sustainable Water Management: Insights from the UN Water Conference 2023
By Renata Bolotova
Water is an essential element for achieving the Sustainable Development Goals (SDGs), as no single SDG can be accomplished without it. SDGs such as ending poverty (SDG-1), health (SDG-3), gender equality (SDG-5), climate change (SDG-13), and sustainable cities and communities (SDG-11) all depend on water. Therefore, without addressing the water crisis, it is impossible to achieve success with the SDGs.
Renata Bolotova at the UN Water Conference
To accelerate the implementation of water-related goals and meet the 2030 Agenda for Sustainable Development, the UN Water Conference was held on March 22-24, 2023. This conference was a platform for various stakeholders, including governments, UN agencies, civil society organizations, academia, and the private sector, to share their experiences, best practices, and innovative solutions for sustainable water management.
Water, as an inseparable part of nature and economic stability, is an essential resource that needs to be considered by corporations and financial institutions when making decisions about their capital allocation given how changes in the availability and quality of freshwater pose a financial threat to the financial sector. The recent CDP’s report ‘High and Dry: How Water Issues are Stranding Assets’ found that around US$13.5 billion has already been stranded as a result of water risks, and a further US$2 billion is at risk on four major infrastructure projects in the gas, coal, mining and power generation sectors. Financial institutions are particularly well-placed to influence or incentivize the transformation of the water sector in ways that single governments cannot.
The UN Water Conference played a crucial role in bringing together private stakeholders to discuss possible avenues for cross-collaboration and joint action in the water sector, including innovative solutions for sustainable water management, such as new technologies, business models, and financing mechanisms. Specifically, sessions such as "Catalyzing the Water Action Agenda for Finance" and "Private Sector Investment Commitment to Water Innovation" focused on innovative financing mechanisms, including outcome funding, concessional debt and equity, impact-linked finance, impact bonds, grants, and technical assistance. These mechanisms were discussed as a way to accelerate capital for financing water infrastructure, water technology, sanitation services, data and monitoring systems, and other water-related projects necessary to supply and treat water for farmers, industries, and households.
Several ongoing initiatives were presented and discussed at the conference. For example, Finance Water Action Pathway (FWAP), a collaborative project between CDP, the Organisation for Economic Cooperation and Development (OECD) and the Water Footprint Network (WFN) with the goal:“to align trillions in financial flows with the achievement of a water secure world.” This Pathway establishes clearly defined actions for financial institutions and other actors to assess and manage water-related risks and opportunities and align their strategies, products, and services with the sustainable use of water resources, and to encourage sustainable practices among their clients and stakeholders.
Danone, a world-leading food company with over 190 production plants worldwide, and operations in more than 120 countries also presented its commitment at the conference by highlighting some of its recent water conservation and management projects through its Danone Communities Fund. The fund supports local initiatives aimed at protecting and preserving water resources and funding numerous projects across the United States that promote water conservation, reduce pollution, and improve the quality of our rivers, lakes, and oceans. One notable project supported by the Fund is 1001fontaines project in Cambodia in partnership with the NGO 1001fontaines. The project aims to provide sustainable access to safe drinking water in rural areas of Cambodia by setting up Water Kiosks that use solar-powered technology to purify water using a filtration and UV treatment process. The project has brought safe drinking water to more than 1,000 schools and communities, benefiting over 500,000 people in Cambodia.
Another innovative financing mechanism discussed at the conference was the Blue Peace Bond Initiative. The initiative has been developed jointly by SDC and UNCDF, with the latter being the primary executor. Its aim is to enable non-sovereign entities such as the River Basin Organizations (RBOs) to enhance their access to novel types of capital via the issuance of a Blue Peace Bond, which is made possible through long-term capacity building. The funds obtained through this process are utilized to undertake a joint investment plan, which includes infrastructure projects such as water treatment, irrigation systems, or other initiatives that promote sustainable water management. Similar to green bonds, investors can purchase blue peace bonds to specifically fund water-related projects, and in return, receive regular interest payments. The long-term goal and hope is that funds raised through the sale of blue peace bonds will be used to support water infrastructure projects that contribute to SDG 6: Clean Water and Sanitation.
Roughly 60% of the world's freshwater resources are transboundary, making Blue Peace Bonds a unique opportunity to introduce a self-reinforcing process of mobilizing public and private capital at the transboundary level by allowing the RBOs direct access to the capital to manage transboundary resources more sustainably.
The concept of Blue Peace Bonds developed an extensive interest from both private investors and local transboundary countries. However, the pilot project to explore the potential of blue peace bonds will be initiated in the Gambia River basin.
The Gambia River Basin faces several challenges related to water management, including droughts, floods, pollution, and water scarcity. The introduction of blue peace bonds in the region provides an innovative financing mechanism to address these challenges and support the sustainable management of water resources in the region. This pilot project, run by the United Nations Capital Development Fund (UNCDF) with support from the Swiss government and the Ministry for Environment, Climate Change and Natural Resources of The Gambia, presents an important opportunity to demonstrate the viability and effectiveness of blue peace bonds in mobilizing private sector financing for sustainable water management. If successful, the next pilot will take place in the Senegal River Basin.
While the full realization of these various types of initiatives and financial mechanisms is yet to be seen, the conference was a historic milestone that brought water to the center of the discussion table and fostered multi-stakeholder engagement on how collective action can ensure access to clean water for all.
Renata Bolotova is a MIB candidate at The Fletcher School.