Swedish lender SEB said that water is going to be a megatrend which should be the “biggest investment theme over the next decade,” but we need to work out how to tailor sustainable finance instruments.
SEB argues that the market will see a “surge” of demand in water investment over the next 10 years. Also speaking on the SEB webinar, Global Water Intelligence (GWI) publisher Christopher Gasson estimates that $12.6 trillion in water investment is needed.
As a result, Gasson and SEB climate and sustainable finance head Christopher Flensborg both said that water is going to be “one of the biggest investments themes” over the next decade and beyond but that currently the private sector was struggling to find a footing in the market.
“We don’t have the [water-focused investment] instruments at this stage,” Flensborg said. “And we don’t have the homes for these instruments.
“And that means we have to go on a journey to get comfortable with how to engage [with this theme] from the private sector. But the opportunity is going to be there, and it is not just about managing risk and stabilising our society. It is also about capturing an investment megatrend.”
Flensborg said there were already good examples of water-focused sustainable finance deals in the market which leverage existing sustainable finance instrument structures – including green bonds from Dutch water authority financing bank Nederlandse Waterschapsbank and the ‘blue’ bonds from the Nordic Investment Bank (NIB).
“I don’t think there is the need to recreate the wheel,” he said. “I think we have the instruments out there, but I think we need to tailor them to water. We need to learn about water and understand where private capital can make a difference.”
He added that there are examples of where water finance has been able to learn from the experience of other sectors, including the energy sector.
For example, there have been Water Purchase Agreements (WPAs) in the Middle East and Australia which adapt the Power Purchase Agreements (PPAs) for energy firms to water finance. WPAs are long-term bulk purchasing agreements between a water user and water supplier which means the user agrees to buy a set amount of water at a pre-negotiated price during the agreement period. PPAs for electricity have been key financing tools for developers of renewable energy generation assets.
The Global Commission on the Economics of Water said in 2023 that a “new social contract” between the public and the private sector around water “can convert the water crisis to an immense global opportunity for economy-wide innovation”. GWI’s Gasson said this was “key to opening up private finance in water”.
“There are huge gains to be had if we can get private sector expertise more involved in water, because the productivity of the water sector has really not changed in the last 100 years,” Gasson said. “And that is largely because there is no profit margin driving innovation – and people tend to be very risk averse in terms of taking on innovation when there is no profit motive. And it has meant that the sector is, overall, very inefficient. So, there is a trade to be made.”
