Page 67 - report_A Matter of Survival

A Matter of Survival

of blue. Moreover, innovation is encouraged by experience and funding sources, and the responsibility of public finance would
recent developments in financial markets provide many ideas for be limited to defaults, which are exceptional occurrences rather
creating resources to finance water cooperation projects. Only than substantial project funding. Several funds at the national
twenty years ago, it was impossible to secure significant funding and multinational level have offered loan guarantees that lower
for environmentally sustainable projects. Today, green bonds investment risks based on ESG principles or by co-investing in
and green syndicated loans are popular in developed as well as projects to attract other investors to participate by lowering the
emerging capital markets. If green could become popular in the risk perception.
long term, why not blue, even if there is resistance in the short
term? It is known that ESG data collection, analysis, modeling and
information sharing is a key factor in the development of these
Towards a Blue Peace Framework financial products and innovations since the availability of quality
data is instrumental in analyzing and properly calculating risks.
There is a growing momentum towards the shaping of a This is a key area of work for the insurance and re-insurance
sustainable financial system, which incorporates environmental, sector, and the critical third pillar in risk-reducing practices for
social and governance factors – the ESG principles. investments related to public goods.

Rating agencies have begun to incorporate ESG principles Thus, while primary project funding can come from the private
into their methodologies, thus developing sustainable finance sector and financial markets, public sources can reduce project
capital markets, where debt and equity can be raised, bought risks through low cost initiatives such as sovereign guarantees,
and sold. This implies incorporating non-financial information interest and premium subsidies through blue funds. This blue
into the plans of capital providers. Therefore, those who believe fund concept is discussed in more detail later in this chapter.
in the ESG approach are interested in a shade of green and not
only the black color of the balance sheets. Although financial Joint Investment Plans
instruments based on ESG principles are a niche product, they
already represent substantial volumes of capital. From 2012 to Innovation is the key to developing financial resources for
2016, a significant amount of funds worldwide, close to $100 transboundary water cooperation. Countries in West Africa and
billion according to rough estimates provided by media reports, Central America are already ahead of the curve in crafting joint
were raised through green bonds. investment instruments in transboundary rivers basins. The
Trifinio Plan in Central America, the Niger Basin Plan and the Joint
Green bonds have been employed by water sector companies Investment Plans of the Senegal and Gambia River Basins are
to create water installations using ecological principles, though endorsed at the heads of state level. There may be other inspiring
not without controversy. Thus, the use of special financial examples of Joint Investment Plans, but the Panel had first-hand
instruments for water infrastructure projects, which comply exposure to these plans during our visits to these two regions.
with ESG principles, is already established and available to
international financial markets. Joint Investment Plans are not easy since they have to overcome
sectoral and national objectives, but they are attractive to
The next step in the greening process would be to expand the multilateral financial institutions due to their risk reduction
ESG framework to include the Blue Peace framework, which properties. These Joint Investment Plans can mobilize significant
emphasizes transboundary water cooperation to transform funding from the financial sector, if they are communicated
water from a source of conflict to an instrument of peace. The properly to the private sector, and guaranteed by both
framework needs sustainable and collaborative management of governments and multilateral institutions.
water projects by riparian countries. If countries reach political
agreements within the Blue Peace framework, several risks are The Panel believes that if interventions are sequenced correctly,
lessened, including project delay risks, cost escalation and and political and financial wills come together, Joint Investment
legal disputes over infrastructure, as mentioned earlier in this Plans may become a reality in the near future, and should be
chapter. given monetary value.

Since capital markets search for favorable risk reduction This will also be possible due to new technological developments,
strategies, it is important to influence investors to expand the allowing the collection and analysis of data to define and share
existing ESG framework to include the Blue Peace framework future-oriented water availability models. These models are
wherever applicable. It will not be easy to make this an established already jointly developed in several mountainous regions of
strategy, but it was not easy to make the original green financing the world and need to be shaped alongside politically-driven
idea acceptable twenty years ago. An encouraging sign is the agreements. Based on these models and with the support of
significant funds that have been raised in the last five years. data, investment plans can take shape.
The ESG for Blue Peace can be made even more attractive if Even if partners do not strictly abide by the plans, having a Joint
countries provided sovereign guarantees and if multilateral Investment Plan in place is better than having no plan at all. The
financial institutions agreed to special pledges. This would international community should be prepared to initially accept
reduce the dependence of water cooperation activities on public the risk – high indeed – that plans might not be followed by

62