• About us
  • GSDRC Publications
  • Research Helpdesk
  • E-Bulletin
  • Privacy policy

GSDRC

Governance, social development, conflict and humanitarian knowledge services

  • Governance
    • Democracy & elections
    • Public sector management
    • Security & justice
    • Service delivery
    • State-society relations
  • Social Development
    • Gender
    • Inequalities & exclusion
    • Social protection
    • Poverty & wellbeing
  • Humanitarian Issues
    • Humanitarian financing
    • Humanitarian response
    • Recovery & reconstruction
    • Refugees/IDPs
    • Risk & resilience
  • Conflict
    • Conflict analysis
    • Conflict prevention
    • Conflict response
    • Conflict sensitivity
    • Impacts of conflict
    • Peacebuilding
  • Development Pressures
    • Climate change
    • Food security
    • Fragility
    • Migration & diaspora
    • Population growth
    • Urbanisation
  • Approaches
    • Complexity & systems thinking
    • Institutions & social norms
    • PEA / Thinking & working politically
    • Results-based approaches
    • Theories of change
  • Aid Instruments
    • Budget support & SWAps
    • Capacity building
    • Civil society partnerships
    • Multilateral aid
    • Private sector partnerships
    • Technical assistance
  • M&E
    • Indicators
    • Learning
    • M&E approaches
Home»GSDRC Publications»Water Finance and Nature-based solutions

Water Finance and Nature-based solutions

Helpdesk Report
  • Dr John H. Matthews,
  • Rachel Cooper
August 2020

Question

What are some innovations for water finance that could be applied to mainstream and expand Nature-based Solutions in developing countries? What are some obstacles, opportunities and potential synergies?

Summary

Nature-based solutions (NbS) for water security can address a number of challenges simultaneously and deliver co-benefits. Broadly, NbS protect, sustainably manage, and restore natural and modified ecosystems to address societal challenges (Cohen-Shacham et al., 2016). 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. For example, the Global Commission on Adaptation recommends scaling up the implementation to support climate change adaptation (see, for example, Kapos et al., 2019). NbS can also support greening the recovery following Covid-19. The potential for investing to receive multiple benefits rather than the traditional single-purpose investment is likely to be important in the context of reduced overseas development aid (ODA) budgets and potential capital flight northwards. There is also potential to link NbS with job creation and sustaining livelihoods as part of recovery efforts. For example, funding for coastal habitat protection in the USA in 2009 stimulated job creation following the 2008 financial crisis (Edwards et al., 2013).

Integrating green and grey infrastructure solutions can effectively address water security and a blended approach may be appropriate in a number of circumstances (Browder et al., 2019; Altamirano, 2019). Blended or hybrid solutions could potentially increase the attractiveness of NbS to investors and help to mobilise finance. Green infrastructure can complement grey by reducing the costs of engineered solutions and improving overall system performance (Browder et al., 2019; Kapos et al., 2019; Matthews et al., 2019; Abell et al., 2017). Unlike grey infrastructure, which is designed as a solution for one particular problem, NbS can be designed to address a number of water security challenges simultaneously (e.g. wetlands that promote water quality, erosion control, disaster risk management, and sustainable fisheries), support climate change adaptation, and have lower recovery costs after an event than grey infrastructure (ICEM, 2019; Kapos et al., 2019; Vogl et al., 2017).

However, limited access to finance is a key barrier for scaling up implementation of NbS for water security (Kapos et al., 2019; Tremolet et al., 2019). Whilst investment in NbS for water security is growing, it is still dwarfed by the amounts invested in grey infrastructure. NbS attract approximately 1-5% of investment in water security globally (WWAP/UN-Water, 2018; McCartney, 2020), and NbS generally, not just for water security, only attract a small share of climate finance. The characteristics of NbS, including the long-time scale for realising benefits and the diffuse nature of benefits and co-benefits, pose challenges for both public and private investment.

Key Findings:

  • There are two potential courses of action to increase the amount of finance invested in NbS:
    1. increase the number of bankable projects by supporting the development and preparation of projects that can be accommodated by existing investment processes, and de-risking projects to make them more attractive to investors.
    2. supporting systems change and changes in the enabling environment. This could include regulatory and legislation changes to incentivise investment, or the development of tools and guidance that align NbS as an option, placing them on a level playing field with grey infrastructure, which has been more traditionally used to address water security challenges.
  • 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, including Blended finance approaches (e.g. the Philippines Revolving Water Fund), Green bonds and climate bonds, Water Funds, and Climate finance.
file type icon See Full Report [496 KB]

Enquirer:

  • DFID

Suggested citation

Cooper, R. & Matthews, J.H. (2020). Water Finance and Nature-based solutions. K4D Helpdesk Report 857. Brighton, UK: Institute of Development Studies.

Related Content

Nature-based solutions and water security
Helpdesk Report
2020
Water for the urban poor and Covid-19
Helpdesk Report
2020
Water security beyond Covid-19
Helpdesk Report
2020
Social and behaviour change communication interventions in Mozambique
Helpdesk Report
2020
birminghamids hcri

gro.crdsg@seiriuqne Feedback Disclaimer

Outputs supported by FCDO are © Crown Copyright 2023; outputs supported by the Australian Government are © Australian Government 2023; and outputs supported by the European Commission are © European Union 2023
Connect with us: facebooktwitter

Outputs supported by DFID are © DFID Crown Copyright 2023; outputs supported by the Australian Government are © Australian Government 2023; and outputs supported by the European Commission are © European Union 2023