Mobilising funding for water requires accelerated and concerted action on multiple fronts to: make the best use of existing assets and finance, strengthen the enabling environment for investment, pursue strategic investment planning to ensure resilient investments in the context of uncertain future climatic conditions, and mobilise additional funding and financing from various public and private sources. Since 2017, the OECD runs the Roundtable on Financing Water in collaboration with the Government of the Netherlands, the World Bank and the World Water Council, to identify solutions and mobilise the full range of sources of finance contributing to a water secure future. It is the only dedicated forum on financing water at the international level, engaging with policy makers, practitioners and a diversity of actors focused on finding novel ideas and solutions.
Finance and investment for water
Water-related investments deliver essential and measurable benefits for water security, which is the linchpin of our economies. Yet, a substantial financing gap persists. OECD work on finance and investment for water explores solutions to address the finance gap, make better use of existing financial resources, mobilise a broader range of financial resources for water security and tackle the water-related economic and financial risks.
Key messages
Addressing the financing gaps for water security demands more than just increased funding. It calls for strengthening the enabling environment for investment. The OECD has developed a framework to assess the enabling environment for investment in water (both public and private). This includes multiple dimensions, including the national policy frameworks for investment, the water-related policy framework for investment, frameworks for water related projects, and the contribution of other economic sectors to water security. This framework is being tested in OECD and non-OECD countries to deliver specific assessments and customised recommendations, so as to support an acceleration of investment in water security.
Water-related risks, including the risk of too much, too little and polluted water, as well as disruption to freshwater systems, are intrinsically linked to the climate and nature crisis. Yet these risks are not fully captured by financial actors’ current approaches to assessing or managing risk. The financial sector is materially exposed to water-related risks in ways that are not fully understood by central banks and financial institutions.
The OECD works on assessing the financial materiality of water-related risks, supporting collaboration between the environment and the finance communities to improve collective understanding of how water-related risks translate into financial risk, and to develop the necessary tools and data to assess environmental and economic impacts and the financial materiality of such impacts.
Context
Investment needs to meet water targets are high, even in OECD countries
In association with the European Commission, the OECD evaluated the volumes of investments that European Union Member States will need to deploy for water and sanitation services to be in compliance with EU directives on drinking water and urban wastewater treatment. According to these estimates prepared in 2020, all EU countries (including Germany) will need to increase investments by at least 25% and by well above 100% for countries that have joined the European Union more recently, such as Bulgaria and Romania.
Drivers of detrimental water-related business impacts reported by corporates are mostly physical in nature
Water-related risks are significant in economic and financial terms. Such risks, associated with floods, droughts or pollution incidents can propagate through multiple channels, disrupting industrial operations, agricultural production, supply chains and global commodity markets. They can materialise at multiple scales, ranging from household to corporate level, to industry and sector scale and systemic risk. OECD analysis focuses on the financial materiality of water related risks.
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How are investments shaping our economies and societies exposure to water risk? What role can the financial system play in supporting water security? And how can increased understanding of how finance both impacts and depends on water resources spur action towards greater water security? Watch the webinar to find out.
Diving deeper: The evolving landscape for assessing water risks to the financial system
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The Roundtable on Financing Water is a joint initiative of the OECD, the World Water Council, the Netherlands and the World Bank. It draws upon political leadership and technical expertise, with the ambition of facilitating increased financing of investments that contribute to water security and sustainable growth.Learn more
Get in touch
For more information, please contact Sophie Trémolet, Team Leader, Water team of the OECD Environment Directorate.