On the road to COP28 and Kigali: Sustainable Finance for a Water-Wise World
This week, the international community is meeting at COP28, a critical milestone in our collective effort to combat climate change. As the world turns its attention to this pivotal event, it’s essential to recognise that the fight against climate change is deeply intertwined with another global crisis: water security. According to the Global Risks Report by the World Economic Forum, which has consistently ranked water crises among the top five risks since 2015, over 90% of disasters are water-related, with climate change exerting its most significant impact through water, as highlighted in the UN Water Conference. Water is at the heart of both climate change impacts and nature crises, and sustainable finance is emerging as a crucial tool in addressing this intricate challenge. Addressing this, water regulation becomes a critical focus, especially with the urgency need of integrating water into sustainable finance conversations.
Before we dive into the world of sustainable finance for water, let’s take a moment to highlight an important precursor event that I’ve attended: the OECD Forum on Green Finance and Investment. As we move toward COP28, this event has set the stage for critical conversations on financing solutions to address water-related challenges. The 2023 edition of the OECD Forum took place on 2-3 October 2023 in Paris, France, and was developed under the theme of ‘Accelerating Policy Action to Close the Credibility Gap’. The event aimed to underscore the urgency of green and sustainable finance in our current global landscape.
While gathering some of the leading actors from the green finance community, the Forum passed a clear message when it comes to water: although all actors rely on water to some sort of degree, water is not appearing in climate strategies, underscoring its importance and underappreciated its related risks. One of the pressing issues to be addressed is the financial sector’s exposure to water-related physical risks. Despite the critical nature of these risks, they are not yet comprehensively integrated into current risk-assessment tools. This oversight leaves the financial system vulnerable to water-related challenges while missing out on investment opportunities tied to water solutions.
To effectively address these crises, the financial sector’s understanding of water-related risks must be enhanced. Moreover, it’s increasingly evident that nature-related risks, including those related to water, can have significant macroeconomic implications. Failing to account for, mitigate, and adapt to these risks poses a threat to financial stability.
Second, there is a need to expand innovative water systems and nature-based solutions (NbS). Multilateral development banks and philanthropic organisations can play a pivotal role in this landscape. Sustainable financing is emerging as a key enabler in fast-tracking these critical water and nature-focused initiatives. Their vast resources and influence can be channelled toward enhancing climate change adaptation efforts and resilience. Moreover, they can provide innovative financial tools that mitigate the risks associated with investments in these projects.
As we explore sustainable finance initiatives, water regulation emerges as a linchpin, guiding successful projects around the world. For instance, New York City has an initiative aimed at protecting its drinking water through safeguarding its watershed ecosystem services in place since the 90’s. This initiative, which has become a model for many cities in the US, highlights significant cost savings on their financial reports, compared to a filtration plant, making it a fiscally responsible and sustainable choice. In 2016, the San Francisco Public Utilities Commission issued green bonds to finance projects that enhance water supply, water quality, and wastewater management. This initiative not only raised funds sustainably but also increased investor confidence. The European Investment Bank (EIB) has issued green bonds specifically for water and wastewater projects. These bonds enable EIB to allocate funds to support sustainable water infrastructure development in Europe and beyond.
These initiatives showcase the potential impact of sustainable finance in the water sector, ranging from improving water access in developing countries to financing large-scale infrastructure projects in water-scarce regions. They not only secure the necessary funds but also promote environmental and social sustainability. As the global climate leaders gather at COP28 starting on 30 November in Dubai, we need to remind them that the intertwined challenges of climate change and water scarcity demand innovative solutions. Sustainable finance is poised to be critical in our efforts to build a water-wise world that can thrive in the face of these challenges.
Stay tuned for insights and discussions emerging from the IWA Water and Development Congress & Exhibition in Kigali, as we explore the path to a sustainable water future by 2030.