Water Finance and Nature-based solutions

Abstract

This rapid review synthesises evidence on the innovations for water finance that could be applied to mainstream and expand Nature-based Solutions (NbS) in developing countries. This review also highlights some obstacles, opportunities and potential synergies pertaining to the water finance and NbS. NbS for water security can address a number of challenges simultaneously and deliver co-benefits. NbS approaches for water security include source water protection, watershed management, sustainable drainage systems, and wetlands restoration and construction. By improving the timing, location, reliability and quality of water, NbS can improve water supply and quality, and contribute to disaster risk reduction. Co-benefits include improvements to human health, livelihoods and biodiversity and increasing climate change adaptation and resilience. NbS generally are growing in prominence on the policy agenda, and NbS can also support greening the recovery following Covid-19. However, limited access to finance is a key barrier for scaling up implementation of NbS for water security. Whilst investment in NbS for water security is growing, it is still dwarfed by the amounts invested in grey infrastructure. Increasing investment in NbS will involve tackling the challenges they pose in terms of revenue streams and risks, which affect investor confidence. Investors can include private companies, private finance (e.g. commercial banks), and institutional investors (e.g. pension funds). Institutional investors include both domestic and international, with some international institutional investors having guidelines or rules around green investments. There are a number of emerging funding models and financial mechanisms for water projects that could increase the uptake of NbS. This report highlights a small number of financial mechanisms including: Blended finance approaches, Green bonds and climate bonds, Water Funds, and Climate Finance.