Water under pressure – and the promise of green bonds to help
Water infrastructure combines elements of federal ownership and responsibility, state ownership and responsibility, local government, water corporations, public water authorities and the private sector.. Photo by Fidel Fernando on Unsplash

Big rivers are drying up, Perth’s aquifers are becoming contaminated with sea water and there is a threat of wars over water. One financial instrument is holding out possibilities for change.

Green Bonds are one of the financing mechanisms being used in other countries and municipal areas to finance sustainability measures associated with water. 

Bridget Boulle, the Sydney-based head of proposal development for the Climate Bonds Initiative, singles out a bond issue by Anglian Water in the UK as interesting because it was focused on not only water efficiency and climate change resilience but also energy and greenhouse gas emissions.

Moving water around is “very energy intensive,” she says.

Boulle says the San Francisco Public Utilities Commission was the first issuer to use the Climate Bonds water criteria. Proceeds will fund sustainable storm water management and wastewater projects included in the Sewer System Improvement Program and Water System Improvement Program to upgrade regional and local water systems. 

“This is one of the largest water infrastructure projects in US,” she says.

US State of Michigan also issued a bond that includes water quality improvement through clean-up programs that incorporate environmental and natural resources protection programs. These contain proposals to clean up and redevelop contaminated sites, protect and improve water quality, prevent pollution, abate lead contamination, reclaim and revitalise community waterfronts, make state park infrastructure improvements, enhance local recreational opportunities, and clean up contaminated sediments in lakes, rivers and streams.

She says there is a “huge opportunity” in the space.

The big wins would come from infrastructure projects that ensure we have climate-resilient and smart infrastructure for the future water system. But she notes that the projects are expensive and would most likely be financed by government. So they are not necessarily “low hanging fruit” but they would have a big impact.

At the building level there is plenty of low hanging fruit to be plucked, such as increasing efficiency and decreasing water leakage.

“But this involves lots and lots of small changes across thousands of buildings so the impact per building is low.”

Boulle says the reason we have not seen a green bond in Australia yet that has a water focus could be due to the lack of clarity over ownership.

Water infrastructure combines elements of federal ownership and responsibility, state ownership and responsibility, local government, water corporations, public water authorities and the private sector.

The identity of the bond issuer, and the owner of liability for it become very complex questions.

Cape Town, which recently issued a municipal bond with a water focus, faced similar ownership issues. So its bond is targeting assets owned by the local government – the pipes in the city – rather than the catchment and reservoir aspect .

In the corporate space, for example, developers or large asset owners, the barrier is the relative cheapness of regular finance.

Boulle says the competitive price of interest from banks for financing is something that will probably hamper the Australian bond market for a long time to come. 

The Australian bond market generally is small, Boulle says, and the green bond space has relied on the large institutions such as the NSW Treasury Corporation and the Big Four banks to “be the pioneers”.

There haven’t been many issues following the landmark Big Four ones, she says.

Globally, the trend for green bonds has been around the “mainstays” of “very green” initiatives such as renewable energy and energy efficiency.

“They are easy to understand and digest,” Boulle says. “From there it broadens out into transport, and into water. Australia is like everywhere else – it starts with the easy things.”

While it might not be on the Australian green bond radar, more generally Boulle says there would not be anyone in Australia who doesn’t view water as a significant environmental social and economic challenge.

“Everybody knows how scarce it is and how challenged Australia is with water.”

She says it should be “number one” on people’s lists in terms of sustainability issues.

She observes that one way to encourage the market could be to look at water from the energy perspective.

“People underestimate how much energy transporting water around uses.”

Having solar to power the pumps that do the moving might be something for a bond issuance, as people would be able to understand it, she suggests.

Another pathway to green finance for water-related initiatives could be through affordable bank finance.

A local government could, for example, obtain finance for more energy-efficient pumps and the bank loan would be classed as a green loan.

A bank with a number of these types of loans could then issue a green bond off the back of the aggregated green loan-backed projects.

Something for us all to hope for in 2019 perhaps?

Leave a comment

Your email address will not be published.