Natural Capital Symposium Explores Freshwater Finance

West Virginia waterfall

How can the growing community of practice around natural capital approaches continue to engage, learn and adapt? The 2017 Natural Capital Symposium discussed this question at Stanford University on Mar. 20-23.

A key session was titled “Securing Freshwater through Innovative Public and Private Partnerships.” This session showed examples of innovations that often required partnerships between public and/or private institutions, development banks, and civil society.

Partnering to Secure Freshwater

One key opportunity that was discussed involved capturing the value of source watersheds through water funds. A water fund is a platform developed by city leaders and conservation practitioners to help resolve governance issues. They achieve this by bridging scientific, jurisdictional, financial and implementation gaps.

A water fund is designed to cost-effectively harness nature’s ability to capture, filter, store and deliver clean and reliable water. Water funds have four common characteristics: science-based plans, a multi-stakeholder approach, a funding mechanism, and implementation capacity.

Water funds help communities improve water quality by bringing stakeholders together to collectively invest in upstream habitat protection and land management. This initial investment then helps them activate innovative sources of funding later. Innovative sources of funding help scale water funds by linking benefits and costs of the system to more stakeholders.

Many of the speakers acknowledged that despite the overwhelming benefits watersheds provide to cities, most cities don’t influence how their water sources are managed. This disparity is often due to the difficulty of aligning the problem owners and the problem solvers.

Barriers are also created by a lack of funding flows, unsupportive policy environments, and problematic financial structures.

Another missing element can be the knowledge of how investments in source water protection achieves specific water-security outcomes or other benefits.

Water funds try to overcome some of these barriers by providing a framework for collective action. This collective action can be achieved by connecting land stewards in rural areas and water users in urban areas to share the value of healthy watersheds.

Identifying Key Risks and Economic Benefits

This collective action framework was described in the report “Beyond the Source: The Environmental, Economic and Community Benefits of Source Water Protection,” which was published by The Nature Conservancy in 2017.

Andrea Erickson, managing director of water funds and water markets at The Nature Conservancy, said over 100 scientists contributed to the report.

Through this report and other work, Erickson said, The Nature Conservancy is trying to discover how to “connect nature to the needs of society.” Through this connection, she said, a virtuous cycle can be created. This cycle is founded in concern for biodiversity and human wellbeing as well as regard for the services of nature.

The report focuses on water security – especially supply, sediment and nutrients. However, the authors are looking to go much further to show the biodiversity and carbon benefits of source water protection as well.

The authors start by mapping source watersheds to high carbon opportunities. This helps in connecting source water protection to carbon benefits. Source water protection can then be achieved through targeted land protection and reforestation. It also includes agricultural land management.

The conservation of land and reforestation is also linked to better agricultural outcomes. Data shows how patches of natural forest lead to increased yields. The presence of natural forest is also directly linked to biodiversity.

The authors said that if all of the watershed carbon-emission management possible was done globally, 10 gigatons of carbon would be prevented from entering the atmosphere each year. This would equal 16 percent of the required amount of carbon to meet the goal to stop the two-percent change in temperature. That would have a very significant impact on climate-resilience efforts.

Source water protection measures like reforestation and forest protection also help with agricultural runoff. Agricultural runoff can contain nitrogen and high nutrient levels that make its way via rivers to coastal areas. Nutrient over-enrichment in coastal areas generally triggers ecosystem changes that decrease biodiversity. This is a problem because communities are trying to make their living from coastal fisheries.

When analyzing source water protection, The Nature Conservancy started by looking at where communities across the globe get their water – both the location of their intakes and the sites of their trans-basin transfers. The report’s authors mapped 500 cities and used a model to determine where the probable source watersheds are that reach an additional 4,000 cities.

As a result, the authors found that 4/5 of the cities they mapped could benefit in a meaningful way from source water protection. The benefits would come from niche-based solutions. These solutions can consist of land protection or reforestation. They can also include agricultural land management measures. These measures can result in at least a 10 percent decrease in sediment or nutrient loading in the source watersheds.

Through their analysis, the authors believe that with water treatment savings alone, 1/6 of the 4,000 cities can fully offset costs through savings in operations if they were to invest in source watershed natural solutions.

For cities where cost savings alone may not be sufficient, there is the opportunity to include measurable benefits. Benefits such as the positive effects on rural livelihoods, biodiversity and carbon could be stacked to bring other players to the table. Stacking means that the benefits will incorporated into the analysis when determining whether the investment is feasible. This process is already happening in many of the current water funds, so there is evidence that this method can be a workable solution.

The Nature Conservancy currently has a portfolio of 29 funds with 30 in design. Its goal is an ambitious one: to scale to 2000 funds.

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Scaling Solutions

Silvia Benítez Ponce, freshwater manager of the Latin America Water Security Team, said she believes the best way to scale up nature-based watershed payment schemes is to match local solutions with local decision makers.

Benitez said the best way to get the conversation started and seek buy-in is to get people excited about the potential positive outcomes. This can only be achieved by connecting people from different countries, jurisdictions and cities.  

The message is best delivered by people with successful water funds conversing with their colleagues in the locations that are considering water funds, Benitez said. Thus, her role often involves connecting scientists with scientists, mayors with mayors, and communities with communities.

Analyzing Green and Gray Infrastructure

Suzanne Ozment, an associate at the World Resources Institute’s (WRI) Natural Infrastructure for Water Program, said a total of $1.3 trillion will be invested in water infrastructure yearly over the next decade.

Her organization is looking at tackling the problem in a slightly different way by designing profitable strategies that are focusing on combing both green and gray infrastructure. (Green infrastructure consists of nature-based solutions while gray infrastructure consists of materials such as concrete and steel.)

She said this will provide a holistic water management framework that can be both cost-effective and affordable. The solutions will also provide multiple added benefits to communities and industries.

The key reason for the added benefits is that ecosystems can adapt and are flexible in changing climates and ecosystems. Natural infrastructure can also meet sustainable development goals.

WRI uses scientific data, case studies and the Natural Capital Project software known as Invest to perform green-gray analysis. Green-gray analysis is a conceptual framework that looks at cost-benefit analysis and risk-uncertainty analysis to compare natural-infrastructure-investment opportunities with other infrastructure options.

Partnering with Corporations

Although many of the benefits from the scientific studies are evident, getting more players involved in natural capital projects is a major challenge.

The corporate sector often has interests aligned with water security. Lindsay Bass, a manager for corporate water stewardship at the World Wildlife Fund (WWF), makes the business case to the private sector. She said a huge opportunity exists to leverage the interest of corporations in a secure water future for the profitability and growth of their businesses.

WWF started by discussing risk-sharing. Bass says risk-sharing requires corporations to expand their thinking beyond the baseline of operations to evaluate who their stakeholders are. They can then work together to understand how to collaborate to address natural resource challenges that affect fresh water. Bass said she believes this resonate with its corporate partners such as Coca-Cola.

WWF started working with Coca-Cola in 2007 in the Mesoamerica Reef catchments in Mexico, Belize, Guatemala and Honduras. The collaboration has now continued for 10 years.

Bass believes the longevity of the relationship has paid dividends. Coca Cola has increased its investment into the water fund 10-fold as they began to understand the fund’s value to its operations and supply chain. They looked to address the challenges by measurably improving environmental performance across the company’s supply chain and integrating the value of nature into the decision-making process. Bass said Coca-Cola has also been a valuable ambassador. It has provided an example of what can be achieved.

WWF now helps provide quantitative tools such as physical, regulatory and risk assessments. It also has other online tools to help start dialogues with corporations about water.

Bass said the most value comes out of the dialogue created with these systems.

There is extensive potential to expand these collaborations and use natural capital concepts on a larger scale.

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