Legal & Institutional Structure & Formation

It is critical to the success of a water fund to have an effective mechanism to gather and administer financial resources and organize the conservation efforts that are financed with such financial resources. Typically, some kind of legal structure is necessary to provide a sustainable mechanism for the administration of financial resources and organization of conservation efforts.

One or more documents typically regulate and make transparent the rights and responsibilities of all of the stakeholders involved in a water fund and the decision-making process for the use of the money contributed to or raised by the fund in the short and long-term. The documents can be contractual agreements among various existing stakeholders and contributors, or they can be the charter documents for a new legal entity, in which such stakeholders and contributors participate in the governance of the entity.

Such a legal document guarantees the stakeholders’ commitments to participate in the fund through an explicit agreement to unite efforts to carry out watershed conservation activities, either through contractual agreements among existing entities or through the creation of a new entity in which the active stakeholders will be constituents. Such an agreement also gives comfort to third-parties, such as passive financial contributors and the beneficiaries of the fund’s intended activities, that the stakeholders are organized and dedicated to the purposes of the fund.

A broad variety of options for administering funds and organizing conservation efforts are available and have been used by existing water funds in various countries in the past, including:

● Informal contractual relationships among various public and private stakeholders.

● Reliance on a government institution (such as a municipal water authority or environment fund).

● Establishment of a non-profit organization (such as conservation fund).

● Use of a private for-profit organization (such as conservation and remediation companies).

In considering the proper organizational structure for a water fund, there are a number of threshold questions to consider:

● Is it necessary to create a new organization to organize and administer the fund, or can one or more existing organizations spearhead the water fund efforts?

● Who are the sources of financing?

● Who are the stakeholders?

● Will the sources of financing (contributors or investors) permit voting on uses of funds by non-funding stakeholders?

● Will sources of financing expect voting on a pro-rata basis (that is, based on the percentage of financing contributed), or does each source of funds, or each stakeholder representative, vote on an equal basis?