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Must water be an evaporating asset?

As Climate Week drew to a close last month, the media and sustainability experts lauded the private sector for its can-do attitude towards addressing climate change. That level of action is especially welcome coming from the thousands of companies calling for a global price on carbon.

That increasing level of commitment and action from companies must also be applied to water scarcity challenges. From droughts in California and Ohio to the continuing water shortages in India, water scarcity will become only more pressing and affect billions more people with each passing year.

The World Economic Forum has identified "water crises" as one of the top 10 issues (PDF) of greatest concern to the global economy in 2014, two steps above "failure of climate change mitigation and adaptation" and the third highest risk ranked overall.

A 2012 study found that from 1995-2005 at least 2.67 billion people — over one third of the world's population — already were living in water basins that experience severe water scarcity at least one month a year. Population growth will exacerbate stress placed on existing basins to meet the demands of agriculture, energy and industry, and a growing urban population that expects abundant and clean flows of water every time it turns on the tap.

In SustainAbility's September report, Evaporating Asset: Water Scarcity and Innovations for the Future, developed with the support of the Rockefeller Foundation, we explored the urgency of water scarcity and some of the most innovative approaches to address it. While there is no silver bullet for what Deloitte's enterprise water strategy director, Will Sarni, so aptly describes as a "wicked problem," there is a critical need to find better solutions and pursue smarter collaborations to stay a step ahead.

The systems surrounding water — the environmental ecosystems that preserve and replenish freshwater, the political systems for allocating water and the variety of ways it is used for agriculture, drinking and industry — create a complex web with no singular answer. Climate change adds a further layer of complexity through altered rainfall patterns, changing temperatures and increasing drought.

System-level solutions for a wicked problem

Due to this complexity, collaborations that involve systems-level solutions rather than siloed actions are most promising. In the report, we note a growing momentum across both the public and private sectors to find those solutions. This momentum is driven by increasing private sector understanding and action on water risks, the continued momentum around the concept of the food-energy-water nexus and the interest in green infrastructure.

Some innovative solution areas we identified include watershed payment mechanisms, water risk management tools, water markets and environmental impact bonds and green bonds.

Watershed payment mechanisms are a good place to start. With examples such as China's Eco-Compensation model and The Nature Conservancy's Water Funds, these collaborative mechanisms show a great deal of promise for engaging stakeholders to restore the health of watersheds.

Water risk management tools such as the Natural Capital Project's RIOS and InVest along with WRI's Aqueduct and WWF's Water Risk Filter, although each unique in what they analyze, can evaluate and identify where companies and water stakeholders should focus their efforts.

The development of water markets through water rights and water quality trading can direct resources toward and incentivize the most economically viable water solutions and the actors best positioned to deliver those water solutions.

New financing tools such as green bonds and the potential development of environmental impact bonds (akin to the social impact bond, but for environmental purposes) are pioneering ways to drive capital towards water solutions.

While the approaches described in "Evaporating Asset" point to solutions that involve diverse stakeholders and use innovative market-based mechanisms, more action and investment is needed. We must continue to foster a high level of engagement and action around water by both the public and private sectors in order to meet the water scarcity challenge.

Top image of salt evaporation pond south of San Francisco by Doc Searls via Flickr

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