Private sector finance plays pivotal role in tackling world’s water crisis

A new report from WWF, ING and The Boston Consulting Group (BCG) is calling for urgent efforts by corporates, investors, governments and NGOs to address the world’s deteriorating water situation via private sector finance to help deliver sustainable, bankable freshwater projects

Released at the Financial Times Water Summit in London this week, Seizing the Water Opportunity details how private and public capital can join forces to boost global efforts to achieve the Sustainable Development Goal of water for all, securing a critical lifeline for societies, economies and the bottom lines of firms and financiers.

With global water resources under ever-increasing stress, the report says the private sector is set to play a pivotal role in tackling the steadily worsening water crisis and help improve water security, create financial value and enhance the health of the world’s river basins.

“Without substantial investment in sustainable freshwater projects, the world’s water crisis will only get worse – increasing water shortages, degrading precious ecosystems, and putting businesses at risk of drying and drowning assets,” said Aaron Vermeulen, WWF Global Lead Finance and Freshwater.

“The only way to secure sufficient investment is by leveraging the power of the private sector. But individual bankable projects must be part of a broader river basin approach, which also includes improvements to freshwater governance and blended finance mechanisms,” added Vermeulen.

OECD says US$1 trillion must be invested each year in water infrastructure alone

The Organization for Economic Co-operation and Development (OECD) estimates that US$1 trillion needs to be invested each year in water infrastructure alone to secure water for all. Given the size of investment required to realize the SDGs, the private sector is set to play a pivotal role. In the water sector, philanthropic donations and grants make up only a fraction of the more than US$1 trillion needed.

According to the report, this presents an opportunity for companies and private sector investors to improve sustainable water resource management and mitigate water risk while also generating solid financial returns.

“By working with our partners and network of water experts like WWF and BCG, ING invests in building a pipeline of sustainable water projects that offer sufficient financial returns and help to reduce long-term water related risk,” said Ambika Jindal, ING Bank, VP Sustainable Finance. “We see opportunities in the water sector and find it important to catalyse freshwater projects that will benefit economies and ecosystems.”

The opportunities for sustainable bankable projects range across all sectors from improving agricultural water usage to enhancing industrial wastewater treatment, developing solar power plants and restoring wetlands. The report highlights some existing bankable projects including:

• Farmers close to the Great Barrier Reef adopting sustainable practices, which curbed reef-damaging river pollution and generated significant financial benefits
• Textile manufacturers in Turkey’s Buyuk Menderes basin implementing cleaner production methods, which reduced their costs and cut pollution
• UK utility Anglian Water raised £250 million in a green bond jointly arranged by ING with proceeds being used to tackle ecosystem-related issues, including resilience and drought.

Common characteristics among these projects include:

• a capacity to generate a sufficiently large cashflow or mitigate risks
• positive impact on the environment
• ensuring the whole river basin is taken into consideration.

Based on these principles, WWF is working on building a cooperative approach to bankable freshwater projects. Advisory sessions have already been held with potential investors and financial experts providing feedback on possible projects in eight river basins – part of a growing pipeline of projects.

However, this barely scratches the surface, according to the report.

BCG: able to measure correlation between societal, environmental and financial performance

“Under mounting pressure from investors, customers, and employees, companies are increasingly taking a total societal impact view on their strategies. What’s more, across several industries, we have been able to measure a correlation between societal and environmental performance and financial performance. For several sectors, reducing water-related risks and costs throughout their value chains is a pivotal element in this effort,” said Adrien Portafaix, Principal at BCG. “In the wake of the SDGs, we see the emergence of a supporting ecosystem to help make sustainable investments more attractive to private sector players.”

Underlining the growing risks to their supply chains, the report is calling on multinational companies to take the lead in promoting better use of water resources by identifying bankable freshwater projects within their own operations and supply chains.

Proactively supporting investments in bankable projects can help companies gain a competitive advantage and benefit from lower costs, more resilient supply chains, and a better reputation with customers and regulators.

The report also recommends deeper collaboration between development finance institutions, government aid agencies, NGOs and private sector investors.

“With support from ING and BCG, WWF is using its freshwater expertise, global partnerships and convening power to develop bankable water projects in river basins across the globe,” said Vermeulen. “We believe this innovative approach will benefit communities and companies by contributing significantly to solving the world’s water crises.”

Click here to download the report