Sustainable Finance is a process that takes into account environmental, social, and governance (ESG) factors in order to create long-term value for both investors and society. This approach to finance recognizes that the health of the planet and the well-being of its inhabitants are essential for the long-term stability of the global economy. In the water sector, sustainable finance plays a crucial role in addressing the many challenges that communities, businesses, and governments face in ensuring access to clean, safe, and affordable water.
One of the major challenges in the water sector is the increasing demand for water due to population growth, economic development, and climate change. As a result, many areas are experiencing water scarcity, which can lead to economic and social instability, and ecosystem degradation. The quality of water sources is also often compromised by pollution, leading to serious public health risks. Furthermore, the infrastructure that provides water to communities is often outdated and in need of repair, leading to inefficiencies and increased costs.
Sustainable finance can help address these challenges by providing the necessary financial resources for investment in water infrastructure and technology. For example, the Dutch NWB Bank (that calls itself as ‘the sustainable water bank’) has issued 13 water bonds in 2021 with a total value of €5.7 billion to finance Dutch water authority projects. Elsewhere, bond issuances and blended finance have also been announced to finance clean water and sanitation infrastructure in developing economies. The Water Finance Facility, which received initial funding of € 10 million from the Government of the Netherlands, was launched six years ago with the goal of mobilizing large-scale domestic private investment from institutional investors such as pension funds and insurance companies in support of countries’ national priority actions on adaptation and mitigation in the water sector.
Video source (The Global Innovation Lab for Climate Finance)
Moreover, sustainable finance concepts and principles may find use at the policy level. The OECD Council Recommendation on Water, for example, recommends that member-states diversify revenue streams[…] and encourages them to tap into new sources of capital, where needed and in line with policy objectives, including commercial sources of finance (loans, bonds, equity) for water supply and sanitation projects.
Finally, water sector practitioners can also play a role in promoting the adoption of sustainable finance in addressing the challenges of the water sector. One of the key ways is by promoting the importance of water conservation and the need for sustainable water management practices. This could include providing education and outreach to individuals, households, and businesses about the importance of using water wisely, as well as the potential consequences of unsustainable water use. Water practitioners can also help to develop and implement policies and regulations that support sustainable finance for water and water services. This could include setting water efficiency standards for businesses and industries, as well as supporting the development of pricing mechanisms that reflect the true cost of water.