A robust portfolio will consider a range of funding sources and may incorporate a mix of public and private sources. There are considerable advantages to building a portfolio that includes multiple approaches and funding mechanisms, as impacts to the sustainability of a given funding source can arise if a company experiences volatility in the market and political commitments can change under different regulatory regimes. Accordingly, a robust portfolio should be developed that strives to manage risk and build a resilient compilation of funding sources.
In this regard, consideration should be given to the duration of each funding source in regards to its ability to help meet short-term and long-term goals of a water fund. Funding sources could be short-term (e.g. grants from private or public donors) or could be long-term or permanent (e.g. a water tariff that provides funding to the Water Fund every year).
The following funding sources should be considered when developing a fundraising strategy:
- Multi-Lateral / Bi-Lateral
- Revenue Sharing
Funding opportunities from the public sector (national government, federal government, local government) are key for building water funds sustainability. Typical examples include: water tariffs, water user fees (watershed committees), environmental compensation funds, water loans, public bonds, public programs (e.g. national Payment for Ecosystem Services programs), local ordinance/law, taxes-ballot, transfers, lottery revenues.
What is a Water Tariff?A water tariff or ‘rate’ is a price assigned to water that is provided by a public utility through a distribution network to its customers. Given that the political and legal structures support it, a percentage of that fee may be designated for watershed protection or restoration activities. Water tariffs are designed to recover the costs for providing water and sanitation services; this is how utilities ensure proper service delivery and maintenance of existing infrastructure. Cost recovery is done by pricing services and transferring it to users through tariffs. Normally water rates do not include all costs and even rarely include the environmental costs of conserving the watersheds that regulate supply and water quality to ensure supplies remain sustainable.
Example: Peru Water TariffIn June 2015, Peruvian water regulator SUNASS (Superintendencia Nacional de Servicios de Saneamiento) developed and approved an innovative new tariff structure for Lima, creating a reserve fund for watershed conservation, restoration and management. Peru’s legislation establishes a first-of-its-kind funding for source water protection throughout the country. SUNASS’s recognition that investing in the conservation of hydrologic ecosystem services is essential for sustainable water resources represents a fundamental change. SUNASS requires Optimized Master Planss to earmark one percent of revenue to invest in natural infrastructure and, in the case of Lima, three and a half percent (average) for disaster mitigation and climate change adaptation. For Lima, this represents an estimated US $25 and US $92 million respectively over the next five years.
Visit the AQUAFONDO website and review the briefing on Peru's Water Tariffs below to learn more.
Peru's Water Tariffs and SWP
What is a ballot measure?A ballot measure is structured process through which constituents vote directly to enact policy and/or public funding. Ballot measures are often applied as funding campaign tools in the United States. Ballot campaigns consist of television, radio, and online ads, direct mail, and more. Depending on the campaign, television remains the most effective way to reach voters on the idea of passing a desired policy or funding measure. While ballot measures are not available in most countries, there is increasing interest in applying these tools in new geographies. Refer to the Conservation Campaigns section of the Toolbox to learn more about ballot measures and related tools.
Example: Edwards Aquifer Protection Program (Texas, USA)In May 2000, voters of San Antonio approved a sales tax that can generate economic development or ‘venue’ funds to support comprehensive plans that have been identified as community priorities. These venue funds support aquifer protection and parks expansion. Each venue is further supported by an increase and an investment of 1/8 of a cent in the local sales tax, or one cent for every eight taxable dollars. Taxable merchandise includes items most residents buy every day such as clothing, fast food, or electronics. It does not include non-taxable goods such as most groceries, medicine, or health services. The sales tax collected to support the Edwards Aquifer Protection venue is set at $90 million USD. The additional sales tax is collected until the set amount for each project has been earned.
Visit the San Antonio government website to learn more about the Edwards Aquifer Protection Program and the corresponding ballot measure.
LOCAL LAWS (ORDINANCES)
What is a local law in the context of funding for a Water Fund?Local governments can establish specific laws that can provide support and funding for Water Funds. Local laws and ordinances have been implemented in several Water Funds across the Andean region.
Example: Quito Water Fund, EcuadorThe Quito Water Fund, also known as FONAG, protects watersheds supplying the capital’s 2 million people with 80% of their freshwater. Though the initial investment in the fund was a mere $21,000 when the project began in 2000. In December 2006, a municipal ordinance was created which established that the Quito water company contribution to FONAG would increase to 2% of the value collected by the water company every month. This has meant significant income for the water fund which currently has an annual budget of more than US 1.5 million.
Water Funds may provide significant benefits to businesses, communities, and the ecosystems they seek to restore or protect, including water utilities who hold a mandate to provide high-quality drinking water supplies.
Water utilities may be able to avoid capital costs for treatment processes such as flocculation and sedimentation, and in some cases more advanced processes like membrane filtration and activated carbon by maintaining a high quality of water in source watersheds by investing in natural infrastructure. For example, there are seven cities within the United States with excellent drinking water quality that have saved from $500,000 to $6 billion in avoided water treatment costs (see Section 1.3 of Gartner et al. 2013). Furthermore, a recent landmark study that analyzed the source watersheds of over 500 major global cities– the Urban Water Blueprint (UWB) – estimates that if water conservation was implemented in 85% of communities globally that this would result in a cost-savings of $890 million from avoided water treatment and an improvement in water quality for 700 million people living in the 100 largest cities on the planet*. These results helped identify cities where conservation may be a cost-effective solution (i.e., in one out of four cities analyzed). This is potentially an underestimate of the number of cities (and their corresponding water utilities) where conservation could be a viable solution as the study did not consider other co-benefits, such as enhanced community and government relations, rural livelihoods, carbon sequestration, and biodiversity.
For reasons such as these, various water utilities around the world have funded conservation programs in source watersheds directly from their maintenance and operations budget.
*This cost-savings estimate is based on an empirical relationship showing that a 10% reduction in water pollution translates to a 5% reduction in operating and maintenance costs at a water treatment plant.
Protecting Drinking Water at the Source: Lessons from Watershed Investment Programs in the US
MULTI-LATERAL / BI-LATERAL
There are several multi-lateral and bi-lateral agencies that can be interested in supporting water funds. These type of funding has been key in several places for design, creation and strengthening of water funds. Some examples of agencies that have supported or are supporting water funds are: USAID, Inter-American Development Bank (IDB), Global Environmental Facility (GEF), World Bank, Gesellschaft für Internationale Zusammenarbeit (GIZ), among others.
The private sector has been a key financial stream for Water Funds.There are several companies leading the way on water stewardship that partner with The Nature Conservancy and Water Funds to achieve desired conservation outcomes. These companies generally have partnered by funding conservation initiatives at large or by funding specific projects, such as by moving their operations towards water security by investing in the watershed conservation activities from which they withdraw water supplies. Corporate funding can support water funds through different mechanisms, as philanthropic engagement (e.g. Corporate Foundation), corporate social responsibility, or related with their operational goals (e.g. water balance projects) or water risk reduction.
A few examples of corporate leaders who are investing in Water Funds are highlighted below.
Keurig Green Mountain
In 2014, Keurig established a new 2020 sustainability target to balance, ounce for ounce, the water used in all of its beverages through projects that restore an equal volume of water for natural and community uses. It has partnered with The Nature Conservancy to help achieve this goal. Keurig has further demonstrated leadership specifically in advancing the global strategy for water funds by investing in the development of this Water Funds Toolbox. The funding provided by Keurig was the catalyst that was needed to centralize the Conservancy’s how-to knowledge and experience in scoping, designing, monitoring, and operating Water Funds, and will prove essential for guiding the incorporation of new learnings.
ABInBev and its subsidiary company Bavaria are strong supporters of the Conservancy’s Water Funds efforts across Latin America. Water Funds have been launched with ABInBev's support in Colombia, Ecuador, Peru, and Kenya.
Private foundations can provide grants to support the design and strengthening of water funds. Even though, this type of funding is limited on time (grants), it has been key for funding key aspects of water funds that can be difficult to fund. For example, studies needed for water fund design, design and implementation of monitoring, publications, workshops, training. Some examples of private foundations that have supported water funds are Ford Foundation, Tinker Foundation, Ann Ray Charitable Trust, the U.S. Endowment for Forestry and Communities, the LOR Foundation, and the Royal Bank of Canada.
A few examples of private foundations who are investing in Water Funds are highlighted below.
Coca-Cola established a goal to return to nature and communities an amount of water equivalent to what is used in finished beverages by the year 2020. Between 2005 and 2015, the Coca-Cola Foundation has engaged in 509 projects in more than 100 countries with numerous partners. As part of the replenish effort, Coca-Cola Latin Center and local bottlers (FEMSA, ARCA, BEPENSA) have granted more than $4 million to support strengthening of water funds and on the field projects in watersheds in 6 countries (Guatemala, Costa Rica, Panama, Dominican Republic, Colombia, and Ecuador). This example is being followed in other countries as Brazil.
U.S. ENDOWMENT FOR FORESTRY AND COMMUNITIES
The Endowment works collaboratively with partners in the public and private sectors to advance systemic, transformative and sustainable change for the health and vitality of the nation's working forests and forest-reliant communities. The U.S. Endowment provided critical seed funding for the development of the Savannah Clean River Water Fund in South Carolina, USA.
Impact investments are investments made in projects, companies, organizations, collaborations or managed funds, with the intention to generate measurable environmental and social impact alongside a financial return. Conservation investments are investments intended to drive positive impacts on our natural resources and ecosystems – specifically, decreased pressure on a critical ecological resource and/or the preservation or enhancement of critical habitat – while also providing a financial return.
While impact investments have not been made into any existing Water funds, this is a source of funding that is being actively explored. Visit the NatureVest website to learn more about the types of projects that are currently underway and the criteria that must be met for a NatureVest deal or project to be launched.
Several water funds have established endowments to ensure long-term financing. Endowments have money invested in different financial portfolios, and the returns of the investments are used to finance water fund financial plan. Endowments can be very effective for ensuring long-term funding as well as financial stability for the water funds, but it can take important amounts of time and money to build an endowment large enough to provide significant stream of funding for the water fund. It is recommended that endowments as a financial source for water funds should be implemented together with other sources of funding.
Revenue sharing is the distribution of both profits and losses between stakeholders of a Water Fund. Revenue sharing can be an attractive option as it may enable specific actors to develop efficiencies or innovate in mutually beneficial ways. Water funds that pursue revenue sharing models need to be very clear and transparent about how revenue is collected, measured, and distributed.
Several examples of successful revenue-sharing schemes that have been deployed for Water Funds are described below.
Latin America Water Funds Partnership
In 2011, The Nature Conservancy, FEMSA Foundation, the Inter-American Development Bank and the Global Environmental Facility created the Latin America Water Funds Partnership. The partnership is a mechanism that allows to provide technical and financial assistance for the creation and strengthening of Water Funds across Latin America. It provides support to local stakeholders to implement them, contributing to establish the management structure for each fund. It also provides advice and technical expertise that can strengthen the operation of the funds, and also facilitate the exchange of experiences and best practices among Water Funds and other stakeholders.
The Green-Blue Water Coalition
This initiative brings together globally-recognized companies to invest in the conservation of watersheds in 12 metropolitan areas in Brazil. The goal of the Coalition is to help businesses and governments adopt the preservation of rivers and springs as an essential tool for sustainable water management. The principle behind the joint effort is that the availability of water is an irreplaceable element in the operation of industries, and that companies interested in the sustainability of their own businesses can contribute decisively to the expansion of water security in Brazil by investing in green infrastructure. Globally-recognized companies such as Ambev, Coca-Cola Femsa, Femsa Foundation and Klabin are already part of the Coalition. Kimberly-Clark, Faber-Castell, Arcos Dourados/McDonald's, Unilever and Bank of America Merrill Lynch also support the initiative. Participating companies will join in sustainable water management actions in their production / supply chains, and through contributions to forest restoration projects in priority areas for maintaining the health of watersheds.
At launching, the Coalition already had the contribution of $4.5 million, which is equivalent to 15% of its five-year total expected revenue of $30 million. This amount will help leverage other public and private resources, such as environmental compensation funds. The sum of investments is expected to reach $250 million at the end of the five-year period.