Phase 2

Step 2.02 , Start Creation of Legal Mechanism


To start the process of creating the Water Fund's legal mechanism, such as establishing the Water Fund as a 'legal entity' within its operating jurisdiction. Depending on local legal requirements, this process may take an extended period of time, even up to and through the Creation Phase.

Key Ideas

The creation of the Water Fund's legal mechanism requires a firm understanding of all relevant legal and institutional conditions. This will likely require some level of analysis by your team, commonly referred to as a 'legal and institutional analysis'. The duration and level of effort required to complete this analysis may be accelerated if other Water Funds already exist within your country (e.g. if results and lessons learned from those cases can be transferred and applied the your local context).

  • Conduct a legal and institutional analysis

    Legal and institutional analyses are undertaken to help navigate legal aspects of developing a Water Fund and ultimately determine the optimal Governance and Legal Model. It is critical that a Water Fund always be in compliance with the guidelines, laws, and procedures of the participating institutions and the country or region where the Water Fund is operating. This analysis is therefore not only critical for the long-term institutional success of a Water Fund, but also for addressing any concerns that partners and stakeholders may hold related to ensuring transparent and accountable governance. Information and data for each given Water Fund will accordingly vary significantly at both the state and country-level. If other Water Funds already exist within the same country, it is highly recommended that a review of those Water Funds be completed to compare governance and legal structures, and that the structure of those water funds be used as a starting point for any future efforts. ​
  • Review existing legislation

    The Water Fund should contribute to and complement existing plans, programs, and projects that different levels of government have established in their environmental policies. There should be consideration of key legal aspects such as national environmental policies, legislation for financing environmental services, the capacity or obligation of public agencies to finance watershed management, existing legislation to establish water service rates, and other existing mechanisms for funding.
  • Review existing management plans

    There should be a careful exploration of existing management plans in the project area to determine how the Water Fund could partially or fully contribute to financing them (e.g. existing plans that are underfunded). These management plans may be broad in scope, in line with the priority focus areas of the water fund, which may include protected areas, territorial zoning, irrigation districts, and so on.
  • Identify legal nature of potential partners

    Given that each country has different regulations for the administration of public resources, there should be consideration if any of the potential funders will be subject to a permanent oversight by state audit agencies and therefore limited or requiring additional steps for their involvement.
  • Optimize resource administration

    The Water Fund's success will largely depend on the adequate management of resources, legal, and financial guarantees, as these can often be limited. As such, the selection of ‘the best option’ for administering those resources is critical. The legal and institutional analysis should explore these options, which may include consideration of the following: Trust Fund, existing national environmental fund, creating a new organization, and operating within an existing organization.
  • What types of legal structures might be established for a Water Fund?

    Froylan Hernandez-Ruiz from TNC describes different legal structures

  • I'm not a legal expert, why should I review these materials?

    There are many reasons why you should hold a basic familiarity with this content. Learn why.

Key Questions

The general process for creating a legal entity and/or mechanism will vary significantly depending on the local context. The project team can use their discretion as to how they go about answering these questions, which may occur sequentially as listed or be prioritized based on immediate needs or information availability.

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  1. Overarching legal questions

    At a minimum, your team should seek to address the following questions:

    • What are the challenges and opportunities for developing a Water Fund in terms of the legal and governance context?
    • What laws and institutional considerations should be taken in the design of the water fund?
    • What type of entity needs to be created in order to have a water fund adequate for the site and how the money will be managed? (e.g. fiduciary trust, environmental fund, NGO, etc.)?
    • How will decisions be made in the Water Fund (governance)?
  2. Legal and Institutional Analysis

    Technology and Intellectual Property Rights:

    o What Intellectual Property Rights Can a Water Fund Have?
    o What Are the Benefits of Intellectual Property Rights?
    o How Should a Water Fund Choose a Trademark?
    o How Can a Water Fund Protect Its Trademark?
    o How Can a Water Fund License Its Trademark?
    o What Are Service Marks and Trade Dress?
    o What is a Copyright?
    o How Can a Water Fund Use Copyrighted Works?
    o What Is a Trade Secret?
    o How Can a Water Fund Use Trade Secrets?

    Marketing and Public Relations:
    o How can marketing and other relationships help support Water Funds?
    o How can a Water Fund best seek support through relationships?
    o How Do U.S. Tax Laws Limit the Financial Support that Non-Profit Water Funds May Receive from For-Profit Organizations?
    o How May a Non-Profit Water Fund Receive Financial Support from For-Profit Organizations Under U.S. Tax Laws?
    o How Can a Water Fund Obtain Financial Support From Non-Profit Organizations or Governments?
    o How Can a Water Fund Obtain Non-Financial Support?

    *Note: while this guidance is intended to support local Water Fund practitioners, a legal expert should be retained to help answer these questions in all scenarios. This guidance was created in collaboration with our partner Morrison and Foerster. Access the correspondence section below for more information.

Overview of legal guidance available in Toolbox

  1. Legal and Institutional Analyses

    ​Legal and institutional analyses are undertaken to determine the feasibility of developing a Water Fund given local, regional, or federal legal requirements and institutional structures. Includes guidance for: (1) technology and intellectual property rights, (2) marketing and public relations.

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  2. Governance and Legal Models

    Water Funds are expected to evolve through a range of legal structures, beginning with simple agreements and then moving towards more sophisticated legal structures. A range of Governance and Legal Models should therefore be explored to identify the optimum governing structure of the Water Fund, while not limiting or unduly constraining the interaction it may have with relevant governing bodies. Includes a wide range of guidance for establishing the legal context.

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  3. HR and Corporate Development Plan

    The legal establishment of a Water Fund may occur through various legal mechanisms that usually increase its complexity (legal and administrative) according to the needs and development of each Water Fund. HR and Corporate development plans help WFs respond to projected needs of the business.

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  4. Legal aspects of launching a WF

    The legal establishment of a water fund may occur through various legal mechanisms. The overall complexity of the resultant structure for the Water Fund will vary depending on the mechanisms.

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