What Can Nature-based Solutions Learn from Twenty Years of Water Fund Development?

  • Nature-based solutions (NbS) are being touted as a key response to climate change
  • Yet, various barriers slow the adoption of NbS, one being the diffuse nature of their benefits
  • Proponents of NbS could learn from the water funds model, which, over twenty years, has built a business case for collective action on water security

Nature-based solutions (NbS) are being touted as a key weapon in the fight against climate change, particularly when it comes to managing the water cycle.  Yet there remain significant challenges to seeing them adopted at the scale required to have meaningful impact. Some of these challenges are conceptual, eg what do we mean by NbS and when are they applicable? Others are very practical, eg national design codes may not permit them.

Thirty years ago, Integrated Water Resource Management (IWRM) emerged in response to the ‘wicked problem’ of sustainably managing water resources worldwide.  IWRM shares certain characteristics with nature-based solutions, such as its emphasis on systems-thinking, adaptive management and the principle of co-benefits.  Yet IWRM has failed to gain the on-the-ground traction and successes in NbS that its early proponents had hoped for, in part due to some of those very characteristics. Over the past twenty years, the water fund model has offered a means to practically implement some of the lofty ideals of IWRM. There are now more than 40 water funds, spanning five continents.

What are water funds?

Water funds are a collective investment vehicle in which stakeholders collaborate to implement nature-based source water protection. Downstream water users invest in upstream land and water management practices, compensating upstream land managers for restoration activities and better management of agricultural land. Many of these upstream activities deploy nature-based solutions, which are defined by IUCN as “actions to protect, sustainably manage, and restore natural or modified ecosystems, that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits”. Rural landowners and communities can benefit economically from these investments as well.

Mutual benefits are the hallmark of successful water funds. The first water fund was established in Quito in 2000. Quito’s Water Protection Fund, “FONAG” (Fondo para la protección del Agua), came during an era when the link between nature conservation and water availability was less obvious than it is now. Yet water funds proliferated – first in Latin America, then on other continents.  The first water fund in Africa is the Upper-Tana Nairobi Fund, which addressed the challenge of severe erosion and nutrient runoff into Nairobi’s water supplies by helping upstream farmers implement practices that both reduce erosion and increase agricultural yields. Today, such activities in the watershed help sustain the water supply for 9.3 million people and will generate an estimated US $21.5 million in long-term benefits for local communities and businesses.

What makes water funds stand out? 

One particular feature of water funds – perhaps different from other models such as IWRM – is the strong emphasis on one or two key stakeholders. These can be likened to the ‘anchor tenants’ that determine whether or not a new shopping mall is built. Without an anchor tenant in place, the decision to invest in building a new shopping mall becomes a risky one, weakening the business case to the degree that the building may not go ahead. Water funds rely on making a compelling business case, usually to one or two key stakeholders, whose ongoing investment in the water fund provides the stability required to build a robust governance structure and make long-term plans.  Oftentimes, the anchor tenant in the water fund model is the water utility. For instance, EPMAPS, the largest water utility in Ecuador earmarks a proportion of its water tariffs directly to support the Quito water fund. This display of commitment encourages others to participate and invest themselves. The anchor tenant for a water fund is not always the water utility though. For example, the first water fund in Africa has two such tenants, the oldest of which is the hydropower company KenGen.

In contrast, the strategic plan goes beyond economic arguments and centres on the political economy of launching. This includes a viable launch plan, building strong governance and clear communications, in addition to influencing policy. Part of this means focussing not just on champions of the model but also on ‘gatekeepers’. Gatekeepers are organisations or individuals with outsized influence on whether a new project thrives. They can be gatekeepers to funding, but also to other necessary resources, such as human resources, aligned projects, access to land, or important policy processes.

Water funds also stress the value of phased implementation, starting with the ‘feasibility phase’, that culminates in a go/no-go decision.  The decision is based on a range of factors, including the interest from anchor tenants, the viability of the political and economic landscape, the hydrology of the catchment and the potential for upstream interventions that deliver tangible benefits. Should a water fund pass this step, significant effort is applied to two aspects: the business case and the strategic plan. The business case relies on making a robust economic and financial case for the water fund, typically geared around the anchor tenant. Where this is a water utility, the focus is typically on avoided water treatment costs – largely a water quality argument.  On occasion though, the focus is on improving the security of supply – more of a water quantity argument.

How are water funds relevant to the concept of NbS?

While NbS have gained significant traction in international discourse, there are clearly areas that need more investigation. Those being asked to invest in NbS want to take informed decisions. Yet, as a recent report suggested, “the potential of NbS to provide the intended benefits has not been rigorously assessed. There are concerns over their reliability and cost-effectiveness compared to engineered alternatives, and their resilience to climate change.”

In tackling this, proponents of NbS can perhaps take a leaf from the water funds playbook and focus on the importance of the anchor tenant. Though a strength of NbS lies in its multiple benefits, spanning a wide range of stakeholders, its adoption at scale in a given context typically requires buy-in from one or two larger players. Diffuse arguments are unlikely to win through. Perhaps, like water funds, proponents of NbS could focus on ‘gatekeepers’. This would hone their arguments in a way that will find favour. Imagine an NGO seeking to persuade decision-makers at the water utility. Their argument is that a programme of catchment management that uses NbS will not only increase water resilience, but will be practically possible to implement, manage and maintain over a 10 to 30-year timeframe. A key requirement for this is to be able to ‘put oneself in the shoes of the decision-maker’, to understand the risks that the water utility perceives and to generate robust arguments that shift their perception of the risk-reward calculus.

Beyond cost-benefit

It has been suggested that “a dearth  of numerical information is a constraint to encompassing NbS in water resource planning … whilst an engineer can easily quantify the impacts of grey infrastructure, such as a dam or an embankment, on river flows, the inherent complexity of most nature systems means that it is rarely possible to quantify the impact of NbS in the same way”.

Clearly this numerical information is important, as the emphasis that water funds place on the business case demonstrates. Yet not all water funds go ahead on a narrow cost-benefit justification alone. Indeed, the Camboriu water fund in Brazil was approved despite in-depth analysis that suggested an RoI of less than one (in terms of the value of sediment reduction over a thirty-year timeframe).  How so?  Key decision-makers – in this case the municipality – considered that investments in NbS, complementing planned investments in traditional ‘grey infrastructure’, would increase their resilience to climate change. Investing in the water fund was viewed as a ‘no-regrets’ decision.

Arguably then, proponents of NbS should also back their economic arguments for NbS with other arguments likely to sway local gatekeepers. In doing so they should bear in mind that whilst long term cost-benefit modelling is important, so is the need to factor in the viability of implementation at scale, future maintenance requirements and the needs of monitoring and evaluation. Finding convincing arguments across this spectrum is a crucial part of creating confidence in decision-makers. Confidence that will be required locally, but in many locations, if NbS are to multiply rapidly.


Water funds are not applicable in all circumstances. Indeed, one of the attractions of the model is that they are not, but that a key design feature – the “go/no-go decision” – provides quick and cheap clarity.  Equally, nature-based solutions may not be suitable everywhere. But if their proponents can focus on a few core concepts, including:

  • the perspectives of anchor tenants;
  • how to arrive quickly at a go/no-go decision;
  • the role not only of champions, but also of gatekeepers; and
  • arguments that go beyond narrow cost-benefit …

… they should find themselves in a strong position to entrench NbS at the scale that global challenges require.

David works for The Nature Conservancy, one of the largest conservation organisations in the world. With a background straddling engineering, economics and politics, his interests are in how collective action can solve the big challenges of our time, including water security and water and sanitation access. He currently focusses on nature-based solutions, green infrastructure and ‘Water Funds’.

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