A new approach to closing the water-climate financing gap

5 Dec 2022 by The Water Diplomat

Water investment

A new publication by authors Amgad ElMahdi and Lixian Wang presents arguments for a paradigm shift in the way that water is defined, developed and financed. Demand for freshwater is constantly increasing through population growth and economic growth, and at first glance this would seem to offer investment opportunities. However, there is currently a global financing gap for water infrastructure which has been estimated at US $ 6.7 trillion by 2030 and US $ 22.6 trillion by 2050. In addition, the projected impacts of climate change will reduce accessibility to water resources as well as increase spatial and seasonal variations in water availability.

Water infrastructure systems, which encompass surface and groundwater resources development, transmission, water treatment and supply, and wastewater collection, treatment and disposal, will be increasingly compromised under various climate change scenario‚Äôs.  

Therefore, future financing of water infrastructure will have to both close the financing gap for water infrastructure and ensure that this infrastructure is resilient to climate change, low carbon, and meets the requirements of the Paris Agreement. For example, the Green Climate Fund is considering non-conventional water resources, including wastewater, as a new asset class. Almost 80% of all wastewater is released into the environment untreated, constituting a relatively untapped resource as populations continue to increase.

The Green Climate Fund is proposing a paradigm shift in water security that is low carbon, resilient, and meets the goals of the UNFCCC and the Paris Agreement. This would require creating an enabling investment environment to identify and fund such transformational water security interventions. It would enable recipient countries to develop pathways to increase both the conservation (protection and restoration of the hydrological cycle) and preservation (reducing losses) of water resources. Also, it would yield an increasing share of investment in water security that is transformational in nature in addressing both climate and water challenges. To achieve this, a new (blended) financing environment needs to be created that establishes water reuse and sanitation as a valued asset and provides an enabling financial and institutional environment to take this asset to the investor.