As they meet to discuss the state of water, leaders at the World Water Congress face a stark reality: our current water regime is dangerously unsustainable. Today, an estimated 4 billion people suffer from seasonal water scarcity, while one-fourth of the global population lives in high water stress countries where more than 80% of the available supply is withdrawn every year. Under current trends, global demand is expected to outstrip supply by 40% by 2030.

Needless to say, allowing this to happen would have dramatic economic and human consequences. On the economic front, sectors ranging from agriculture to utilities, IT or real estate could be severely affected. This wide ranging exposure, which will permeate through many supply chains, could put up to 45% of economic growth at risk by 2050. On the human front, failure to address the impending water crisis would be the deathblow to SDG 6, which aims to ensure access to water and sanitation for all. It would also lead to important security issues, with water-related conflicts already on the rise and up to 700 million people to be displaced by water scarcity by 2030.

Agriculture will be instrumental in solving these challenges, as the sector accounts for 69% of global water use. Improving water management in rainfed lands and promoting water efficiency and re-use in irrigation will be particularly important. Annual investments in irrigation infrastructure, in fact, are expected to reach $213bn by 2050 (nearly double the 2020 levels).

Reducing food waste and changing diets will be two other key levers: the first is responsible for the squandering of 24% of freshwater resources used for crop production, while the second could help cut water use in food by 20%. Both would help water-scarce countries with net water trade deficit recoup some of the water lost in their food exports.

With demand expected to outstrip supply, wastewater management will also be critical. We currently dump nearly half of the world’s wastewater into the environment without adequate treatment. Wastewater reclamation and reuse thus represents an effective solution to reduce water stress. The idea has received growing support amongst urban residents. Few governments or corporations report on this aspect, however. According to a recent CDP report for instance, only 4.4% of companies set and report progress against water pollution reduction targets — compared to the 64% of companies that have reduced their water usage.

Estimates of how much it would cost to tackle the water crisis vary widely — from $7trn by 2030 to $22.6trn by 2050. What is clear is that the financial impact from water risks far outweighs the cost of addressing them - an average ratio of 5:1 at the corporate level, for example, though there are variations across industry and regions. In emerging markets and developing countries, investing in water infrastructure also creates more jobs per dollar spent than any other infrastructure sector.

Private sector participation in water infrastructure remains low, however. Investment in water infrastructure public-private partnerships (PPPs), for example, represents just 6% of total PPP investment despite water infrastructure PPPs making up more than 15% of all PPP projects over the last 30 years, according to World Bank data. Part of the challenge lies in how water is priced, and whether that price properly reflects the value water provides. In many instances, it is not. As of 2019, for instance, only 14% of the utilities tracked by the IBNET database generated enough revenues to recoup total economic costs of service while just 35% were able to cover operation and maintenance costs.

Financial innovation can help. Performance-based contracts, which tie remuneration to results, could be an effective way to attract private financing in water efficiency projects. Results can be substantial: using a contract of this kind, Ho Chi Min City was able to cut water leakages in half.

But perhaps the most promising play lies in the role that nature-based solutions and sustainable finance can play in monetizing the co-benefits between climate and water. Because preserving forests can help preserve the quality of a watershed, for instance, and because preserving forests store carbon, it is now possible to raise capital for water projects by repaying it through a combination of carbon offsets, avoided treatment costs, and watershed protection fees. This is precisely what the US local water utility Central Arkansas Water did last year when it issued the first certified green bond to protect forests and support clean drinking water. And there is room for growth: in 2020, only 10% of the money raised from climate-aligned bonds focused on water.

The good news is that we don’t need technological marvels or a extraterrestrial water sources to achieve SDG 6. The water problem is fundamentally a task of stewardship, equitable distribution and innovation. We have the technology and techniques available. The challenge is in leveraging capital and political will to the task.

Connecting the Drops