Banking on water‑impact bonds: Benefits, barriers and beyond

Introduction

Both marine and inland waters have a tremendous impact on the global economy, as they support a variety of industries, including fishing, tourism, trade and energy. Protecting these vital resources and investing in their sustainable management is crucial for maintaining their economic benefits. Investors can have a significant impact by supporting water-related projects, and an emerging class of water-impact bonds offers a unique opportunity to gain direct exposure to these initiatives. By investing in water-impact bonds, investors can contribute to the conservation and sustainable use of water resources, ensuring their continued economic and environmental value.

Effective water management is crucial for climate resilience, because water resources are increasingly threatened by climate change. By managing water efficiently, communities can better withstand and adapt to extreme weather events, such as droughts and floods, thereby safeguarding their livelihoods and ecosystems.

Both excessive and insufficient amounts of water can have detrimental effects on economic activity. Recent floods in the United States and in central and eastern Europe, such as those in September 2024, caused extensive damage to infrastructure and housing, leading to billions in recovery costs and significant economic disruption. Similarly, droughts have severely impacted electricity production; for instance, the 2024 drought in the Pacific Northwest of the United States reduced hydropower generation by 13% compared with the average over the last 10 years.¹ These examples highlight the critical need for effective water management to mitigate the economic risks associated with extreme weather events.

Marine life plays a vital role in the global economy. The fishing industry, for example, supports the livelihoods of approximately 58.5 million people worldwide, with around 600 million people depending on fisheries and aquaculture for their income. In 2019, aquatic foods provided about 3.3 billion people with at least 20% of their average intake of animal protein.²

Additionally, marine ecosystems contribute significantly to tourism. Coastal and marine tourism is valued in the trillions of US dollars, attracting millions of visitors annually and supporting local economies. The ocean also plays a crucial role in global trade, as it facilitates the movement of goods across the world.

In this paper, we believe the immense economic value of marine life is evident and makes the sustainable management and conservation of marine resources crucial for the global economy.