
Handbook for the implementation of nature-based solutions for water security: Guidelines for designing an implementation and financing arrangement
This handbook offers operational advice and project preparation guidelines, including hands-on formats that project proponents can use continuously and iteratively to develop the entire business case of NbS, enabling them to go from the idea stage towards an investment proposal or investment project stage that can be effectively assessed by potential investors. To illustrate the use of these guidelines the handbook presents the results of their application to three cases in Europe within the NAIAD project and to one case in Asia that was part of the Water as Leverage for Resilient Cities Asia programme.
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OVERVIEW
Introduction
The report highlights the urgent need for a paradigm shift in economic development to address increasing climate-related challenges. With climate impacts causing annual losses of up to USD 330 billion and the World Bank predicting water scarcity could reduce GDP by up to 6% in some regions, the adoption of Nature-based Solutions (NbS) is essential. NbS, which integrate natural and engineered approaches, can mitigate climate and water risks while promoting resilient and sustainable economic growth. Despite their potential, NbS attract only 3% of global climate funding, and private sector investments remain minimal, with the majority of funding originating from public sources.
Developing investable Nbs propositions: Financing framework for water security approach
The Financing Framework for Water Security (FFWS) bridges strategic adaptive planning with investment planning, enabling the transformation of NbS projects from conceptual to bankable propositions. The FFWS incorporates the Five Case Model: strategic, economic, commercial, financial, and management cases. It fosters collaboration among stakeholders and utilises tools like system analysis and collaborative modelling.
The report underscores the importance of robust implementation arrangements, including governance, funding, and procurement strategies, to ensure the long-term sustainability of NbS projects. Hybrid solutions, combining NbS and traditional infrastructure, are emphasised for their multi-functional benefits. Viability Gap Funding (VGF) and innovative instruments such as resilience bonds and environmental impact bonds are highlighted as crucial tools for addressing financial viability gaps.
Developing an Nbs strategy: Water resources planning
Integrated Water Resources Management (IWRM) is essential for aligning NbS with broader water security goals. NbS are positioned as critical for addressing water risks, such as floods and droughts, and are particularly effective when integrated with watershed planning. Demonstration projects, such as wetlands restoration and urban flood management, have showcased their value. The report stresses the importance of lifecycle analysis (Lifecycle Cost Analysis, LCCA) to accurately estimate implementation costs and project sustainability.
The investment case of Nbs versus traditional grey infrastructure
NbS face challenges compared to traditional grey infrastructure due to unique cash flow and risk profiles. Benefits are often delayed, dispersed, and non-monetary, complicating investor interest. However, NbS generally have lower lifecycle costs due to the adaptive and regenerative capacities of ecosystems. Blended finance strategies are recommended to overcome barriers, combining public and private funding sources. The insurance sector plays a pivotal role, offering resilience-based premiums, providing data on historical losses, and contributing to systemic risk reduction strategies.
The Ffws in action: Developing the investment case of Nbs strategies for water security in Europe and worldwide
The FFWS methodology has been applied across Europe and globally, including in Spain, Romania, the Netherlands, and Indonesia. Demonstration projects, such as urban wetlands and floodplain restoration, showcase the economic and social benefits of NbS. In Romania’s Danube basin, wetland restoration addressed flood risk, while in Spain’s Medina del Campo aquifer, ecosystem restoration mitigated drought impacts. The FFWS also informed the development of Semarang’s urban resilience strategy in Indonesia, demonstrating its adaptability to diverse contexts.
The way towards implementation at scale: Main findings, conclusions and recommendations
Key findings include the need for:
- Complete business cases for NbS to access funding.
- Innovative contracting practices, such as mosaic projects, to manage hybrid infrastructure.
- Greater involvement from the insurance sector to monetise resilience dividends and catalyse investments.
- Engaging the private construction industry for hybrid project planning and delivery.
- Enhanced skills development and public-private collaboration to address expertise gaps.
Policy recommendations include creating research consortia with a mix of expertise, integrating private sector involvement, and establishing advisory boards to guide project development. Emphasis is placed on public-private collaborations and leveraging insurance-backed resilience dividends to align institutional frameworks with NbS requirements.