Water investment: the engine of green development? 

Water is fundamental to every aspect of life on earth yet remains undervalued, and therefore underfunded. This underfunding both inhibits growth and exacerbates our vulnerability to the impacts of the climate crisis, including water scarcity and flooding. Kate Hughes CBE, chief executive of the Resilient Water Accelerator, explores how proper investment in water – blending public, private and development funding – can increase resilience and open the door to growth.

In his book Value(s), Mark Carney, the former governor of the Bank of England, sets out the water-diamond paradox. Diamonds command huge financial value but provide very little utility, whereas water is essential for daily life and yet has very little value in financial terms due to its perceived abundance.

This is the heart of the challenge facing water investment: on the one hand, it should be the best investment ever made. Everyone, everywhere, needs water. It underpins our food and health systems, it’s critical for energy and industry, for transport, for biodiversity and economic growth. But this very aspect of its everyday nature, of being a fundamental human right, means that it is often under-valued.

And this comes just at the time when climate change means that our expectations of water availability need to shift dramatically. Water is the way in which we experience climate change, and each year we are seeing record-breaking flooding, droughts, salinity and the spectre of ‘day zero’ – when towns and cities run out of water.

Investment falling short

In any other sector, this would lead to a fundamental rethink about our investment approach – public investment would be prioritised, and corporations and banks would look across their portfolios to see how they could build resilience, reduce risk and create opportunities. We have seen this in renewable energy and now in nature and biodiversity, but water is lagging behind. Investment in water falls far short of what is needed globally to deliver on the UN’s Sustainable Development Goals and to reach the 4 billion people globally who live with extreme water scarcity for at least one month a year.

But the picture is starting to change. More and more companies are realising that water is critical to their operations and supply chains, to their customers and employees. And increasingly water isn’t just being seen as a very local issue – about your tap or borehole, your farm or reservoir – but about the wider watershed, the complex systems in which water flows across jurisdictional boundaries, through value chains, between ecosystems.

And there is a realisation that investing in improved water security and climate resilience now can save future investment costs, reduce risk and increase returns. Standard Chartered recently reported that for each $1 invested now on adaptation, an economic benefit of $12 could be generated this decade, “highlightingthe significant economic pay-off of early action towards adaptation and the potential gains for investors”.

The largely acknowledged truth is that there is no cheap pathway for water. Either we build resilient water services now, or we pay for the disaster later, but that latter course of action will be much more expensive in economic, social and environmental terms.

Lessons from Lagos

These issues are particularly clear in Lagos, Africa’s largest city, where the Resilient Water Accelerator is currently working, and where there are plentiful supplies of water both from underground aquifers, the Ogun river, and wetlands. In fact, Lagos comes from the Portuguese word for ‘lagoon’, and water represents more than 22 per cent of the city’s total land area. Despite this, only 10 per cent of its 20 million residents have access to municipal water supply, with everyone else resorting to expensive water vendors or private boreholes, with no checks on the quality of this water. These unserved customers, in addition to facing disproportionately high costs for water, will also be the first to feel the impacts if services are disrupted because of climate change.

Lagos is a thriving city full of entrepreneurs, innovation and energy. Everyone I have spoken to, from the CEOs of international banks to the marginalised communities living in temporary accommodation, has a story about water. Their roads and houses are flooded, the borehole runs dry, the water is too saline to use, the street vendors are too expensive, and sewage seeps into the soil and water supplies.

To manage water supplies and ensure everyone everywhere has the access they need, we need institutions, skilled professionals and infrastructure. While these building blocks to water security come at a price, early investment brings huge benefits and, most importantly, helps to avoid economic disaster.

An urgent pace

Vivid Economics estimated in 2021 that investment in freshwater would benefit living standards, alleviate as much as 10 per cent of disease burden, boost access to school, and increase life chances. Every $1 spent on flood resilience would avoid $62 in restoration costs.

If investment is delayed however there are severe potential consequences. For example, the recent report on the resilience of London identified that, despite increasingly rainy winters, the city is facing severe water risk. The report’s authors found that in the event of drought, where the city does “not having enough water to go around, it would cost London's economy alone £500 million each day” until it is resolved. (Read two expert takes on the London Climate Resilience Report on the CIWEM website.)

Many policy makers and water operators are all too aware of the problems faced by their water systems. In the last couple of years, Bangladesh has put water at the heart of its National Adaptation Plan, while this summer we worked with the governor of Lagos to launch the Lagos Water Partnership, to bring together policy makers, experts and investors to build a clear roadmap towards water security.

The ‘missing middle’

What we have been seeing is a ‘missing middle’ in water investment where, because of the complexities of water systems, high up-front costs and poorly managed utilities, only very small (under $1 million) or very large (over $300 million) water investments are being made. Less glamorous and more functional medium-sized investments get stalled in the planning system for years due to the failure to demonstrate feasibility or overcome red tape. Unfortunately, these delays start to add up as cities and countries sleepwalk towards increasing vulnerability.

This system-wide risk is one of the main reasons why the Resilient Water Accelerator was created. We recognise that there are few out-of-the-box solutions to water; what is needed is collaboration and co-ordination to prioritise a range of actions to address the main threats to water security. We also recognise that for any water strategy to be successful it must secure investment from a range of sources – public finance, development finance and – critically – private investment. There will never be enough public finance to plug the gap, and so we are identifying projects and financing models that can bring in private finance – to show proof of concept and to showcase investments that deliver for investors, for communities and for climate resilience.

In Lagos we are looking at proposals for a water treatment plant which would increase the quality, reliability and availability of water in the system for those who are paying a huge proportion of their daily income on privately-supplied water. By looking at the wider challenge, we can see that the plant needs a secure renewable energy supply, non-revenue water needs to be addressed, as does the challenge of up-stream wetland degradation which has affected water supply. And we can also see that there are customers who really recognise the value of water, and are currently paying far too much.

If Lagos can secure the investment needed to address these highly solvable problems, then there are cascading benefits: consumers get the water they need at a lower price than they are currently paying; health outcomes improve; productivity increases; and climate resilience is enhanced.

That is not to say that water is the silver bullet to solving climate risk, but it is clear that without water security, we cannot be resilient. And this is where investing in water has real value: it will build resilience, reduce risk and increase economic growth; and there’s a market of at least 8 billion people.

Author:

Kate Hughes CBE is chief executive of the Resilient Water Accelerator