The value of water: putting together the puzzle pieces for sustainable investment

By Nachilala Nkombo, WWF-Zambia Country Director, Kathleen Dominique, OECD Programme Lead Financing Water, and Andre Fourie, Global Director Water Sustainability, AB InBev

Last month, the theme of World Water Day — “valuing water” — encouraged everyone to take a moment to consider what water means to each of us. The result was revealing – a kaleidoscope of diverse responses reflecting how the value of water manifests differently for different people and different communities from home and family life to cultural practices, businesses, health and well-being. These are incredibly important facets of the value of water. But, it also raises the question about whether all these individual reflections are sufficient to illuminate a broader collective understanding of the centrality of water systems to economies, communities and ecosystems.

Water presents a paradox of the essential. It is a critical resource for societies and economies – even a life sustaining one for people and nature. Nevertheless, it is chronically under-valued. Water usually only garners attention and investment when it is running out or has caused a disaster. Fortunately, we are starting to see a shift in how water is appreciated, with companies starting to move beyond a focus on water efficiency behind their own fence lines to a broader focus on watershed health. Similarly, investors are beginning to channel capital towards water-related investments and understanding how water risks can impact their portfolios. And governments are working to improve water policies, infrastructure and management.

A need to shift from fragmented efforts to strategic collective action

But efforts remain piecemeal and fragmented. Long-term, sustainable impact at scale remains elusive. Governments struggle with constrained budgets (in part due to the under-valuing and underpricing of water) and may lack the capacity to manage water resources adequately. Financiers typically have a narrow focus on a pipeline of bankable projects, which may deliver financial returns, but fail to deliver consistent benefits to communities over time. And businesses are often focused on short-term water risks, rather than contributing to collective efforts to build long-term water security. Again, this kaleidoscope of perspectives and interests does not easily translate into broader collective action.

Building truly resilient watersheds — and resilient communities, economies and ecosystems — over the long-term requires that we seize the opportunity of rising awareness of the value of water, growing interest from investors and corporate action on water stewardship in a strategic way. In short, we need a framework to distill these fragmented perspectives into a coherent vision. Creating a global framework would not be sufficient to drive action, as it would lack the context-based nuance needed to adequately address water challenges that are hyperlocal in nature. Instead, what would bring value is to bring an analytical perspective to individual basins and develop frameworks that could serve as models and inspiration for others.

Water resources and natural capital are at the heart of Zambia’s long-term sustainable growth

Zambia presents a unique and valuable case study for appreciating the full value of water and the importance of addressing the emergent threats to water security. It is one of the fastest growing economies in Sub-Saharan Africa and is blessed as a relatively water-abundant country. Many of the activities driving Zambia’s economic growth are crucially dependent on the Zambezi River Basin. Nearly all of the country’s electricity already comes from hydropower, and other key sectors such as agriculture, mining, fisheries, tourism and manufacturing are highly dependent on water resources.

Like many nations, Zambia is facing increasing water demand in line with a rapidly growing population and economy.  Climate change is expected to impact rainfall patterns as well as increase the frequency and intensity of extreme events such as droughts and floods. Finally, extensive use of fertiliser in agriculture has led to major eutrophication problems in the Zambezi River Basin, including rapid growth of invasive water hyacinth. This poses detrimental impact on river transport, fish populations, and can cause blockages at the hydropower facility downstream in the Kafue Gorge Dam. Lack of wastewater treatment plants, for industrial wastewater and domestic sewerage negatively affect water quality.  

For a number of years WWF and AB InBev have been partnering to address critical water challenges in Zambia by developing blended finance approaches to encourage sustainable private sector investments at the landscape scale. Specifically, Zambian Breweries Ltd, the local subsidiary of AB InBev, is working with WWF and the Kafue Flats Joint Action Group to deliver projects that address the current pressures on the landscape.

Through this partnership, WWF and AB InBev provided support to for the OECD to its recently released report “Strategic Investment Pathways: The Zambezi Basin case study” examining the critical nature of water resources and the enabling environment for investment to drive sustainable development in the Zambezi Basin. The study outlines some of the key steps the Zambian government can take to catalyse the scaling up of private sector investment in the Zambezi Basin in a way that contributes to water security and resilient, sustainable growth over the long term.

Promisingly, the study found that strong legal and policy frameworks for water management exist in Zambia. However, implementation remains a challenge. This situation is not unique to Zambia, so the study’s recommendations can easily translate across borders:

• First, governments need to improve coordination of roles and responsibilities and enhance enforcement of existing legal and policy frameworks for water management, so as to provide incentives for the sustainable management of the resource. Specifically, this requires strengthening and enforcing the water allocation regime, which needs to balance trade-offs among water various users: hydropower, agriculture, domestic use, industry and the environment. Targeted compliance monitoring of existing water and land management policies can be a cost effective approach to enforcement.
• Governments and public agencies can capture opportunities to strategically disperse existing funds to crowd in additional investments, enabling impact even in the face of limited budgets. Notably, there is an opportunity to attract institutional investors (e.g. domestic pension funds), as set out in Zambia’s 7^th National Development Plan.
• The private sector can support governments in scaling up investment, but bankable projects must be sequenced in a strategic investment pathway to ensure that investments are both bankable – and beneficial – to communities, the environment and the economy.  A strengthened enabling environment is a prerequisite to delivering benefits and financial returns over time. The prioritization of projects may be guided by several criteria:
  
  • projects that maximize net benefits over the long-term
  • projects that have the potential to be combined with others within the landscape, to aggregate benefits and capture opportunities for pooling capital to fund investments
  • projects that provide flexibility to adapt to future conditions, including nature-based solutions
    
• Finally, these strategic investment pathways and associated efforts should be expressly linked and coordinated with Zambia’s 7^th National Development Plan.

Ultimately, what’s clear is that in the water puzzle, all actors — public, private, NGO — have a piece to contribute and a role to play. This case study from the OECD provides a framework for the Zambian government, WWF and local corporates such as Zambian Breweries to fully appreciate water as a key enabler of inclusive economic growth. AB InBev and WWF are committed to building on the global momentum on water stewardship to create a world in which communities, businesses and nature can thrive together. The OECD continues work on strategic investment pathways as well as leading a dedicated platform for engagement on financing water through the Roundtable on Financing Water. We all have a collective opportunity to scale our impact and give longevity to the water projects we are investing in, but it starts with changing the way we think about—and act on—the value of water.

Further reading

OECD (2019) Making Blended Finance Work for Water and Sanitation: Unlocking Commercial Finance for SDG 6, OECD Publishing, Paris,

OECD Programme of work on financing water: www.oecd.org/water/roundtable-on-financing-water.htm

OECD work on water: www.oecd.org/water