How ‘Impact Investing’ Can Increase America’s Water Security

Environment

How ‘Impact Investing’ Can Increase America’s Water Security

Author Barry Gold
Barry Gold

Environment Program Director

For each of the past six years, the World Economic Forum has listed ‘water crisis’ as one of the top three risks facing the planet – right alongside weapons of mass destruction and climate change. 

This is sobering, to put it mildly. 

Because most Americans have reliable, daily access to a clean, safe supply of water, the threat can seem remote – something urgent only in places like the third world.  

In reality, the U.S. faces serious challenges of both water quality and water scarcity.  

Threats to freshwater exist across water basins in the U.S., from the Ogallala Aquifer in Texas to the Klamath River in the Pacific Northwest, from Flint, Michigan to the Southeast, where Florida and Georgia are in dispute over how much water Georgia can take from its rivers.

Our nation’s most important and iconic river systems are among the most compromised. Water quality in the Mississippi River basin has been degraded for decades by increasing nutrient pollution from agricultural runoff. 

The Colorado River, which provides water to more than 30 million Americans, is still reeling from the impacts of a 16-year drought that has brought its basin states to brink of shortages.  

While this year’s above average precipitation has helped, the problem of water supply isn’t going away. By 2030, 53% more people will be living in Colorado basin states and they will need water, on average 200 gallons a day. 

In both the Colorado and the Mississippi River basins, it is urgent that we find solutions. ‘Impact investing’ can be a key tool for foundations, along with policy reform and innovation, to improve freshwater security. By deploying investment capital with an eye towards both an environmental return and a financial return, foundations and other investors can use the power of their investments to drive change. 

With billions of dollars needed to maintain and expand the country’s water infrastructure, this private funding can supplement public investments to meet this infrastructure need. Importantly, private impact-focused investment can drive funding towards tomorrow’s sustainable infrastructure solutions, rather than yesterday’s infrastructure approaches. Private investment is also needed to advance water technology (the equivalent of ‘clean tech’ for water) and water-smart agriculture and ranching. 

Philanthropy can be a catalyst. 

Foundations may choose to make the actual for-profit investments directly or, as the Walton Family Foundation is doing, help set up the infrastructure and opportunity for others to do the investing.

There is a real need, for example, for grant funds to help design truly sustainable water investment deals. Good deals are built – they aren’t found. And by helping to build water deals with sustainability at their core, foundations can help drive the larger private investment world to good deals.

Like many innovative approaches, initial demonstration projects are needed to prove the viability of the concept before they can be taken to scale. At the Walton Family Foundation, we funded a research project to explore the opportunity for impact investing in water and design sustainable water investment blueprints.

That research focused on the Colorado River basin and identified several types of investments with potential to advance water solutions while generating a financial return.

Some examples of innovative water investment opportunities in the Colorado River basin include: 

  • Holistic Management of Working Ranch Lands. Private investment can help to improve grasslands condition and soil health through changes to the management of working ranch lands. Through land purchases or joint ventures with ranchers, private capital can help ranchers convert to sustainable ranching practices on both private lands and public leased lands.
  • Maximizing Agricultural Water Efficiency. Many farmers face challenges in financing water efficiency projects. There is an opportunity for private capital to fund improvements in agricultural water use, such as converting to higher value, lower water use crops, growing more drought-tolerant crops with irrigation infrastructure upgrades and enhancing land management techniques to increase overall efficiency.
  • Municipal Water Conservation. There is a real opportunity for private capital to bridge infrastructure funding gaps and encourage the development of environmentally-beneficial municipal infrastructure. For smaller communities that lack access to capital, a “green bond” could provide low-cost capital for green solutions. For larger communities, a pay-for-performance “environmental impact bond” could reduce the municipal risks from trying new sustainable infrastructure approaches. 
  • Next Generation Water Trusts. Traditional water trusts use philanthropic capital to buy water rights and convert them to instream uses. Where state water laws allow it, a new generation of water trusts could be developed to obtain water rights through agricultural efficiency investments and deploy those rights into a river basin to benefit river flows and generate an income stream. 
  • Water Storage Trading. An investment in a trading mechanism could enable simple trading to help protect reservoir levels during dry periods and hedge against the risks of serious shortages. It could create incentives to recharge and maintain groundwater in storage, protecting strategic reserves and connecting surface water systems.

These sustainability tools have the potential to dramatically improve water security in the West. But time is of the essence. We have no more than 10 years to get this right – it’s past time we do our part to mitigate the risk of crisis facing the U.S., and the globe. 

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