Water Climate Bond Standard

After a year of planning, a new Water Climate Bond Standard has been released for public consultation. The Water Climate Bond Standard was developed throughout 2015 by a Technical Working Group (TWG) and Industry Working Group (IWG), convened by a consortium whose members include the Climate Bonds Initiative, Alliance for Global Water Adaptation (AGWA), Ceres, CDP and the World Resources Institute. The Water Climate Bond Standard is part of a broader Climate Bonds Standard certification scheme designed by the Climate Bonds Initiative to provide clear, sector-specific eligibility criteria for assets and projects that can be used for Climate Bonds and Green Bonds. The proposed Water Standard Criteria can be downloaded here.

“To become resilient to extreme weather events and climate change impacts, cities and regions need to intensify and speed up resiliency planning. Green bonds addressing water issues could be important instruments to fund these efforts. The Climate Water Bond Standard fills an existing gap to help guide both issuers and investors to stimulate, identify and support the promising water projects that follow resilience pathways.” Eric Shellekens, Climate Adaptation Advisor, Arcadis Nederland B.V.

What are Green Bonds?

Climate bonds are used to finance – or re-finance - projects needed to address climate. They range from wind farms and solar and hydropower plants, to rail transport and building sea walls in cities threatened by rising sea levels. Only a small portion of these bonds have actually been labeled as green or climate bonds by their issuers.

A Green Bond is where proceeds are allocated to environmental projects. The term generally refers to bonds that have been marketed as “Green”. In theory Green Bonds proceeds could be used for a wide variety of environmental projects, or even parks development; but in practice they have mostly been the same as Climate Bonds*, with proceeds going to climate change projects.

Green bonds offer the same returns as other bonds, but with the added benefit that funds are only going to climate change solutions. For a lot of people – like the $22 trillion of investors who are members of the Global Investor Coalition on Climate Change – this is important. They give investors a chance to direct capital to climate change solutions, where at the moment there is little opportunity (“lack of deal-flow”).

Climate bonds satisfy the needs of issuers, bondholders and the environment.

*For an detailed explanation of terminology, click here.

The State of the Market

The European Investment Bank and World Bank were the first entities in the global market to offer green bonds. Since those initial offerings in 2007-2008, the labeled green bond market has experienced explosive growth, from US$3bn in 2012 to US$36bn in 2014 to $41.8bn 2015.

Since the original emergence of green bonds offered by the multilateral development banks, the market has diversified to include offerings from government agencies, municipalities, utilities and corporations. Click here to view CBI's 2015 Green Bonds Final Report.

Green bond issuers by type

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Green bond values by year

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*Click on the graph for a detailed breakdown of 2012-2015

Green bond allocations

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Why a Water Standard?

Water-related projects are a growing subset of the green bonds market that encourages investments for a low carbon and climate resilient economy. Climate resilient investments in water are desperately needed if sustainable infrastructure is to be achieved.

Fresh, clean water is arguably our most precious resource. Changing precipitation and the reduction in snow and ice are already impacting hydrological systems in many areas of the world. The IPCC warns that the proportion of the global population experiencing water scarcity will increase throughout this century; cities, regions and nations will increasingly have to compete for water.

The Water Climate Bonds Standard is intended to provide investors with verifiable, science-based criteria for evaluating water-related bonds, and to assist issuers in the global corporate, municipal, sovereign and supra-sovereign markets in differentiating their green bond offerings.

A Water Climate Bonds Standard should ensure that labeled green bonds for a wide variety of water-related projects and assets are held to common standards of robust, low-carbon and climate resilient water management. All water-related projects and assets that are certified under the Standard should continue to bring environmental and climate benefits over the operational lifetime of the project.

A Standard for Adaptation, Mitigation, or Both?

Most of the green bonds issued to date have been for the purposes of climate mitigation—the reduction or avoidance of GHG emissions. Energy production, reduced energy consumption, and carbon storage and sequestration are all climate mitigation projects.

Climate adaptation projects are focused on addressing existing or projected climate impacts, such as increasingly severe droughts and floods.

Water projects and assets offer the potential to invest in both climate mitigation and adaptation projects to climate change, where in some cases both mitigation and adaptation are relevant to a single project. These categories are not mutually exclusive and projects may be assessed under both climate mitigation and climate adaption themes.

How Does it Work?

This Standard can be used to evaluate projects as diverse as industrial water efficiency, reuse, catchment or watershed restoration and or large-scale water supply infrastructure development.

The document provides the necessary methodology and process to evaluate a project’s likely compatibility with the Water Climate Bonds Standard, whether you are a project sponsor, an underwriter, an auditor or a bond investor.

This Standard should be recognized as a starting point and can be supplemented by other relevant standards that cover areas such as stakeholder engagement, social or human rights. We emphasize that the proposed criteria are provisional and may be adapted either due to public feedback or future developments in the water sector.

Navigating the Standard Certification Process

Step 1
: Identify the theme most appropriate for the project to begin assessment
Step 2: Collect evidence materials relevant to each theme
Step 3: Provide disclosure or evidence for each of the scoring components of those categories
Step 4: Adjust scores for each category based upon Notching Factors (NF)
Step 5: Sum total score and compare to Water Climate Bond Standard certification levels for scoring at superior, acceptable, or not acceptable levels

Who will use the Standard?

A Water Climate Bond Standard must ultimately meet the needs of a diverse set of stakeholders that include:

  • Institutional investors, who have a fiduciary duty to assess and compare investment risks;
  • Institutions seeking financing, who must be able to identify standards that are relevant to their finance needs and sector;
  • Technical decision makers such as engineers and water managers, who must be able to connect broad policy issues around climate mitigation to operational level decision-making; and
  • Civil policy makers and office holders who have a public finance, regulatory, or water service provision responsibility

Public Consultation & Next Steps

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The Water Standard will now undergo a 60‐day period of public consultation, investor and industry comment closing at 17:00 GMT 12 February 2016.

We welcome all interested parties to submit comments to Climate Bonds Standards Manager, Justine Leigh‐Bell.

Following the conclusion of the public consultation, the proposed criteria for Water Climate Bonds will be reconsidered in light of the comments received. A revised draft will then be submitted to the Climate Bonds Standards Board for approval.

About the Consortium

About Ceres
Ceres is a non-profit organization advocating for sustainability leadership. Ceres works to mobilize a powerful network of investors, companies and public interest groups to accelerate and expand the adoption of sustainable business practices and solutions to build a healthy global economy.

About CDP
CDP works to transform the way the world does business to prevent dangerous climate change and protect our natural resources. We see a world where capital is efficiently allocated to create long-term prosperity rather than short-term gain at the expense of our environment. CDP holds the largest collection globally of self-reported climate change, water and forest-risk data. Through our global system companies, investors and cities are better able to mitigate risk, capitalize on opportunities and make investment decisions that drive action towards a more sustainable world.

About Climate Bonds Initiative
The Climate Bonds Initiative is an investor-focused non-profit organization working to mobilize debt capital markets for climate change solutions. It works as an independent resource for the green bond market with the aim to educate, inspire, convene and steer a global collaboration of institutional investors, governments, development banks and industry to shift capital to climate investments – at speed.

About World Resources Institute
World Resources Institute (WRI) is a global research organization that spans more than 50 countries, with offices in Brazil, China, Europe, India, Indonesia, and the United States. Our more than 450 experts and staff work closely with leaders to turn big ideas into action to sustain our natural resources—the foundation of economic opportunity and human well-being.

About the Alliance for Global Water Adaptation
The Alliance for Global Water Adaptation (AGWA) is a group of regional and global development banks, government agencies and ministries, diverse non-governmental organizations (NGOs), and the private sector focused on managing water resources in a sustainable way — even as climate change alters the global hydrological cycle. AGWA is focused on how to help experts, decision makers, and institutions in the water community work more effectively.

About the Knowledge Platform

The Knowledge Platform is designed to promote and showcase an emerging set of approaches to water resources management that address climate change and other uncertainties -- increasing the use of "bottom-up approaches" through building capacity towards implementation, informing relevant parties, engaging in discussion, and creating new networks. This is an ongoing project of the Alliance for Global Water Adaptation (AGWA) funded by the World Bank Group.

Contact AGWA

Alliance for Global Water Adaptation
7640 NW Hoodview Cir.
Corvallis, Oregon 97330