Sustainable Funding

Approximately US$650 million is channeled annually from direct water users such as cities, agricultural associations, industrials and water utilities acting on behalf of customers into watershed NbS. Such investments are primarily motivated by the direct water security benefits received by these downstream beneficiaries that translate into bottom-line impact in the form of cost reductions, increased revenues or risk operational risk reduction.

This grouping refers to project-based watershed investments made by companies with the intended goal of minimizing water risk and mitigating the impact of a company’s operations or supply chain in a given basin (beyond what is legally required). These investments can also be referred to as replenishment investments or water balance investments. In some cases, these investments may be part of a company goal to “return” or “replenish” an amount of water equivalent to what is used in some or all of their corporate activities. These commitments are typically evaluated via standardized accounting methodologies such as the Volumetric Water Benefit Accounting  method or agreed on in other forums such as CEO Water Mandate’s NbS Benefit Accounting Initiative.

These watershed management initiatives reward land managers for enhancing or protecting ecosystem services and are typically funded by supranational, national and state/provincial governments. Such subsidy payments totalled US$23.7 billion across 139 programs. Examples include the European Union’s Common Agricultural Policy (paid for via contributions by EU member countries) and the US Department of Agriculture’s Conservation Stewardship Program (paid for via the Farm Bill).

This pool represents grants raised from international donor funds (e.g., the Global Environmental Facility), bilateral agencies (e.g. Swiss Agency for Development and Cooperation), private philanthropy and corporate donations. Securing such support is typically tied to showing alignment between WIP outcomes and the global development agenda (e.g., the Sustainable Development Goals) and can be particularly relevant for addressing up-front WIP preparation phase development costs and conducting field intervention pilots for your WIP’s priority NbS options.

• This category refers to WIP benefits beyond water security that can, under certain circumstances, serve to enhance the WIP’s financial profile when implementing its NbS Investment Portfolio. It includes:
  Carbon credits: The US$1 billion annual voluntary carbon credit market is primarily met by NbS measures, including landscape protection, forestry and agriculture (Ecosystem Marketplace 2021). The most active buyers of these credits include the energy, consumer goods, finance and insurance sectors which seek to immediately address their net emissions footprint as they work to abate more difficult-to-address and costly supply chain and infrastructure upgrades over the long term.
• Circular economy outputs: In certain cases, NbS measures can provide direct cash flow or asset appreciation that generates funding potential for the WIP. For example, selectively thinning forests to reduce the risk of catastrophic wildfire generates biomass and/or timber that can be of potentially valuable commercial use.
   

With a total estimated global annual market value of UD$31 million, these schemes are typically compliance-driven regulated markets where water users have the opportunity to manage their watershed impacts by compensating others for offsite activities to improve water quality or supply. Compensatory activities in such markets are packaged as a credit or other unit and are typically traded within watershed boundaries. Examples include the Ohio River Basin Trading Project and New Zealand’s Lake Taupo.