IHE Delft Institute for Water and Education (IHE Delft) and the Netherlands Water Partnership (NWP) started their collaboration in 1999, when IHE Delft became a member of NWP. After more than 20 years of water cooperation, IHE Delft and NWP are entering a new phase, sealed with a Memorandum of Understanding (MoU) that focuses on the topic of Water Financing. Both organisations identify ‘Finance for Water’ as a strategic theme that is needed to develop more water projects worldwide and in so doing, contribute to achieving Sustainable Development Goal (SDG) 6 on water and sanitation. In this new MoU, IHE Delft and NWP seek to jointly bridge the gap between financiers and the water sector.
Worldwide, water projects rely mainly on public financing. Yet, the public sector alone will never be able to meet the immense financing needs required to deal with future water challenges. The infrastructure needed to attain SDG 6 and protect the world’s population from too much, too little, and too polluted water calls for increased and blended financing from both the public and private sectors.
Accessing the capital required to achieve SDG 6 poses a significant challenge. In emerging markets and developing economies, the finances required to meet the SDGs are two to four times higher than existing, predominantly public, flows. This is exacerbated by the fact that less than a quarter of current climate financing is allocated to adaptation, and of this, less than five percent is destined for developing economies.
It is therefore crucial to mobilise more commercial financing to fill this gap. However, this financing model is in itself constrained by the high-risk profiles and small size of many water investments. Numerous water projects are neither financially appealing nor mature enough to attract private investors, complicating the water sector’s access to private financing.
At the same time, it should be acknowledged that there is an abundance of capital in the financial sector seeking a return on investment, and water is increasingly becoming an interesting asset to invest in. Water projects have a high environmental and social impact which makes them attractive to financiers who are pursuing sustainable assets. In addition, existing private assets are being threatened by an increasing amount of water related risks, which further motivates an investment behaviour to secure them.
Blended finance, local capital markets and better use of intermediary financial institutions could facilitate an expansion of capital flows. However, these other means require additional knowledge and skills within water agencies to prepare ‘bankable’ proposals that can attract financial flows from the private sector.
IHE Delft and NWP recognise this need for bankable projects and have joined forces to strengthen the capacity of the water sector in finance for water. Both organisations have extensive experience, defined strategies and strong goals in the field of water financing, which provide a solid foundation for collaboration.
With its distinguished academic presence in the water sector, IHE Delft contributes to the knowledge and capacity base of managing climate risks and on planning, designing, financing and maintaining infrastructure sustainably. It does so predominantly, but not exclusively, through education (MScs & PhDs) and training professionals. NWP’s Finance for Water team focuses on the gap between the water world and the financial sector in order to boost Dutch contribution to and participation in international water projects. NWP works towards this goal by creating insight into financial instruments (private and public), proactive matchmaking and consortium building between the water and finance sectors, promoting project identification and development (facilities), and offering hands-on support to Dutch water sector parties and the financial sector in the fields of project development and financing.
Building water finance capacity
NWP’s and IHE’s strategies complement and strengthen each other. Under this new MoU, the organisations will jointly design propositions and activities that help bridge the gap between the water and financial sectors. The goal is to support and inspire water and finance actors, strengthen capacity within the water sector, provide a platform for knowledge sharing, and explore potential synergies between existing and planned activities, and projects.
The first activity resulting from this partnership is a new course on ‘Financing Water Investments for Water Professionals’ that starts in December 2020. This course consists of a four-day programme and is designed to help understand the many facets of and perspectives on water financing. In addition, it reviews the criteria for bankable projects and introduces the basics of project finance by which the financing sources that can be used for water infrastructure projects can be identified.