Bridging the Water Gap

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    Stockholm (NordSIP) – On the occasion of World Water Day, NordSIP took the opportunity to consider some of the water-related issues still plaguing our planet, what is still lacking and what resources have been channelled to address these concerns. Much remains to be done but the tools are available to fund the projects that promise to protect our oceans and improve sanitation.

    Pollution, Climate Change and Droughts

    According to figures published in Nature, the world discharges 730 million tons of sewage into the water. Industry accounts for 300 to 400 megatons of waste into the water every year. The quality of earth’s bodies of water matters, not only for the animals and plants that rely on them to survive but also as a crucial factor in the dynamics of global warming. As NordSIP heard at a panel on the Blue Economy at the 2023 GIIN Impact Investment Forum, the ability of the oceans to act as heat sinks has allowed average global temperatures to remain 17⁰C. Without them, this temperature would be 50⁰C.

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    Meanwhile, climate change continues to increase water scarcity. A 2022 report by the UN Convention to Combat Desertification (UNCCD) notes that since 2000, the number and duration of droughts has risen 29%. 55 million people were affected by droughts every year around the world. Estimates suggest that up to 700 million people might be at-risk of being displaced because of drought by 2030. Between 1998 to 2017, droughts caused global economic losses of roughly USD 124 billion.

    At a time of increasing investor awareness of the value of natural capital, it should not escape the financial community that over 30% of the global biodiversity has been lost because of the degradation of fresh-water ecosystems due to the pollution of water resources and aquatic ecosystem, according to a 2015 report by UN Water.

    Insuficient Sanitation

    But the focus on the state of water should go beyond the issues plaguing it in the wild. As of 2022, 2.2 billion people still lacked access to a basic drinking water source, according to the latest report of the WHO/UNICEF Joint Monitoring Programme (JMP). The same report also notes that 3.5 billion people lack access to safe sanitation and that 419 million people. The issue is one of infrastructure, but also one of pollution.

    Fulfilling the UN Sustainable Development Goals on Water

    SDG 6 – Clean water and sanitation, and SDG 14 – Life below water (also known as the ocean goal), are the two SDGs directly focused on water. SDG targets 6.1 and 6.2 set the bar higher than simply basic access, aiming instead for safely-managed access that is within a 30-minute round trip. A 2016 estimate by the World Bank (WB) argued that achieving these targets will cost approximately US$114 billion a year between now and 2030, and those are only the costs for constructing new infrastructure, not the costs of operating and maintaining infrastructure over time.

    Meanwhile, the World Economic Forum (WEF) notes warns that “the ocean goal is the least funded of the SDGs. A 2020 study by Johansen and Vestvik estimates that US$174.52 billion per year is needed to implement SDG14 until 2030. Yet, in the period prior to the pandemic (2015-2019), SDG14 has received just below US$10 billion in total funding.”

    Investment Opportunities

    In this, as in many other themes, sustainable investors have a role to play and a range of investment opportunities at their disposal.

    As of 2022, there were 53 water funds managing assets worth US$36 billion across the globe, according to Morningstar. Ecolab and Pentair are some of the most prominent companies in this market, with BNP Paribas noting the importance of the latter of these two companies for the performance of its BNP Paribas Aqua and Global Environment funds in 2023.

    In fixed-income markets, Blue bonds are the financing vehicle often used by multinational development banks (MDBs) to channel funds to water-related projects. According to estimates discussed by Man Group, the period between 2018 and 2022 saw the issuance of only 26 blue bonds worth an aggregate US$5 billion, or less than 0.5% of the sustainable debt market. Nevertheless, this is an interesting market with issuers such as the Seychelles, Belize and Ecuador. In the Nordics, the Nordic Investment Bank (NIB) is known to come to the market with Blue bonds financing projects in the Baltic sea.

    A Time to Act

    Water matters. It is a source of life to all living creatures and its maintenance plays a crucial role in the stability of our climate and the viability of social and industrial infrastructure. Much remains to be done to fill the US$200 billion annual funding needs of SDGs 6 and 14. The instruments are available to channel the necessary funds to the projects that promise to facilitate the sustainability transition in the water sector. Now is the time to act.

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.
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