The philosophy of water and a greener future
When you enter an entirely new area, banking can feel almost like philosophy. The big questions what the job to be done is, and how to think about and define it to meet long-term goals need to be answered before action can be taken.
This is the case with work now going on to understand better how to husband and preserve the planet's natural capital assets, including its simplest and most important resource - water, the source of life - as part of the global finance community's ever-broadening remit to tackle climate change.
Water is behaving increasingly unpredictably under pressure from climate change. With some regions becoming drier and others ever more prone to flooding, the need to find and share new ways to measure water's value, so it can be built into investment strategies, is intensifying.
"This is why one of the new areas in the EBRD's Green Economy Transition Approach for 2020-25, as it moves towards making a majority of its investments green, is looking at how best to invest in natural capital, from soil and sustainable land management of the ecosystems that water feeds, to water itself," explains Craig Davies, the EBRD's Green
Economy and Climate Action department lead on natural capital.
The Green Economy Transition approach, approved by the EBRD's Governors in October 2020, aims to accelerate the transition to a green, low-carbon and resilient economy, and to contribute to achieving a net zero carbon world by 2050. The EBRD has a strong track record in green finance, with more than €37 billion committed to over 2,000 green projects since 2006. "It's very clear that natural capital has a vital role for sustainable development in the EBRD regions," says the EBRD's Marta Modelewska.
"The EBRD region
is
richly endowed with natural capital assets, but they are increasingly coming under threat of depletion and degradation due to intensified production, rapid urbanisation and the impacts of climate change. This calls for action to preserve and where possible to enhance natural capital."
"All companies rely on natural capital and impact it in some way," adds Mr Davies. "As an investor, we must encourage companies to identify, manage and prevent adverse impacts that are material to their business operations. The ability of many resource intensive companies to operate is dependent on sustaining the ecosystems that provide them with these underlying resources." Already a leader in climate finance, the EBRD has extensive project experience across water-scarce regions in North Africa and Central Asia, where soil degradation can be a problem for agricultural land, as well as in areas such as the Western Balkans, which have seen serious flooding in recent years.
A project, co-financed by the Green Climate Fund, on Morocco's water-scarce Saiss plain has already demonstrated the benefits of bigger, joined-up thinking on protecting water supplies, Ms Modelewska says. It tackles the "unsustainable use of groundwater which is leading to a reduction in groundwater reserves, posing a severe threat to agricultural production and rural livelihoods. We are supporting the government in building a water transfer scheme that will deliver more than 100 million cubic metres of irrigation water to the Saïss plain each year."
The focus now is on unlocking the potential of natural capital assets by looking to benefit entire regions - working systemically in an area of endeavour that, while full of exciting possibilities, is still short on definitions, standards and widely accepted metrics. "We are conceptualising what it means for the EBRD and how we can work with a range of clients on pro-nature investment across sectors," Ms Modelewska says.