Water Infrastructure Criteria under the Climate Bonds
Standard
Background Paper
Defining Expectations for Water Infrastructure-Related Certified Climate
Bonds

Version 3.3
August 2022

Version 3.3 | August 2022

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Document revision number

Date

Summary of changes

3.3 Clarifications on assets
within scope

August 2022

3. Update to criteria to
include desalination assets

January 2021

Clarifications made in the Criteria document
regarding eligible desalination assets.
Criteria themselves not changed.
Specific criteria were developed and addedfor desalination plants. A separate low
carbon energy threshold is set for plants,
along with an extra section for brine disposal
and feedwater in the A&R checklist.

2. Formal update to criteria(phase 2)

May 2018

1. First publication of original
Criteria (phase 1)

Oct 2016

Criteria added for nature-based and hybrid
water infrastructure covering such purposes
as water collection, storage, treatment anddistribution, flood protection and drought
resilience.

Acknowledgement
We, the Consortium consisting of the Climate Bonds Initiative, the Alliance for Global Water
Adaptation (AGWA), CDP, Ceres, and the World Resources Institute (WRI), gratefully
acknowledge John Matthews, Coordinator for the Alliance for Global Water Adaptation (AGWA)
and lead specialist on the Technical Working Group for the Climate Bonds Standard Water
Infrastructure Criteria. John was instrumental in driving the development of these Criteria,leading the discussions with the Technical Working Group and Industry Working Group.
We would also like to thank all members of the Technical Working Group and Industry Working
Group for their time and valuable expertise that helped shape these Criteria. A full list of all
TWG and IWG members is available in Appendix 1 and 2.
We would like to extend our sincere gratitude to Stockholm International Water Institute (SIWI)
for their support; and thanks to the US Department of Agriculture’s Natural Resources
Conservation Service, the KR Foundation and the Rockefeller Foundation for their funding
support.

Version 3.3 | August 2022

2

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Table of content
1.

Introduction .............................................................................................................. 5
1.1.
1.2.
1.3.
1.4.

2.

Funding the transition to a climate-resilient development trajectory ....................5
Water infrastructure as part of that vision ...............................................................6
The Goals of the Climate Bonds Standard and the Water Infrastructure Criteria .7
How the Water Infrastructure Criteria Were Developed ..........................................8

Water infrastructure in the context of climate change ............................................ 10
2.1.
What is water infrastructure ...................................................................................10
2.2.
Water infrastructure and climate change ...............................................................112.2.1.
Water and Greenhouse Gas Emissions .............................................................122.2.2.
Adapting Water Management to Climate Impacts ..............................................13
2.3.
Desalination today and in the future ......................................................................15
2.4.
Desalination and climate change ...........................................................................16

3.

Green Bonds for Water Infrastructure .................................................................... 18
3.1.
Funding needs for Water-Intensive Investments: A Shifting Policy andInvestment Context .............................................................................................................18
3.1.1.
Investment need for desalination and current financing......................................18
3.2.
Bond issuances to date...........................................................................................193.2.1.
Bonds in the Desalination sector ........................................................................21
3.3.
Growing credible green finance for water..............................................................21

4.

Key issues considered in the Water Infrastructure Criteria .................................... 22
4.1.
Scope of the Water Infrastructure Criteria .............................................................224.1.1.
What assets and activities should be covered by these Criteria? .......................22
4.1.2.
What assets and activities are not covered by these Criteria?............................23
4.1.3.
Automatically excluded assets and activities under these Criteria ......................24
4.1.4.
How does this scope fit with other Sector Criteria under the Climate Bonds
Standard?..........................................................................................................................24
4.2.
What climate impacts are addressed in the Water Infrastructure Criteria? .........25
4.3.
How to address climate mitigation in the Criteria? ...............................................26
4.4.
How are climate mitigation and climate resilience balanced in the Criteria? ......27
4.5.
How to address climate adaptation & resilience in the Criteria? .........................27
4.5.1.
How is climate resilience defined and addressed in the Criteria? .......................27
4.5.2.
Using a process-based approach to assess climate vulnerability .......................28
4.5.3.
What resilience attributes were deemed most necessary to address in theseassessments? ...................................................................................................................29
4.5.4.
How might these qualities best be evaluated? ...................................................29
4.5.5.
What are the boundaries of the assessment? ....................................................31
4.6.
How are phase 2 Criteria relating to hybrid and green water infrastructure
assets incorporated alongside phase 1 Criteria for built water infrastructure? .............31
4.7.
Dealing with complexity and uncertainty ...............................................................32
4.8.
Incorporating Desalination Criteria into the Water Criteria ..................................33
4.8.1.
Scope of desalination criteria .............................................................................34
4.8.2.
Distinctions based on plant size .........................................................................34
4.8.3.
Distinctions based on feedwater type .................................................................35
4.8.4.
Other variation in desalination plants .................................................................36
4.8.5.
Determining a metric for mitigation thresholds ...................................................36
4.8.6.
Determining a threshold for mitigation thresholds...............................................38
4.8.7.
Potential emissions in energy efficient plants .....................................................39

Version 3.3 | August 2022

3

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

4.8.8.
4.8.9.
4.8.10.
4.8.11.
4.8.12.
4.8.13.

Desalination and grid stability.............................................................................39
Brine disposal ....................................................................................................40
Feedwater intake ...............................................................................................41
Desalination with respect to other water management techniques .....................42
Desalination driven by waste heat ......................................................................42
Intermittency of renewable energy .....................................................................43

Appendix 1: Technical Working Group and Industry Working Group members ............ 45
Appendix 2: Experts engaged in development of the Desalination Criteria ................... 47
Appendix 3: About the Water Infrastructure Criteria Consortium Members ................... 47
Appendix 3: Existing green assessment frameworks and processes for water
infrastructure assets and projects.................................................................................. 48
Appendix 4: Guidance on Water-Related Human Rights and Social Risks for Issuers,
Underwriters and Bond Buyers ..................................................................................... 52
References .................................................................................................................... 54

Version 3.3 | August 2022

4

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

1.

Introduction

1.1.

Funding the transition to a climate-resilient development trajectory

The current trajectory of climate change, expected to lead to a global warming of 3.1-3.7°C by
21001 poses an enormous threat to the future of the world’s nations and economies. The effects
of climate change and the risks associated with a greater than 2ºC rise in global temperatures by
the end of the century are significant: rising sea levels, increased frequency and severity ofhurricanes, droughts, wildfires and typhoons, and changes in agricultural patterns and yields.
Avoiding such catastrophic climate change requires a dramatic reduction in global greenhousegas emissions.
At the same time, the world is entering an age of unprecedented urbanisation and infrastructuredevelopment. Global infrastructure investment is expected to amount to USD 90 trillion over the
next 15 years as the developed world maintains and upgrades existing investments while middle
and low income countries expand their pool of infrastructure to meet new and emerging needs.
The investment required over this period are estimated to be more than the value of the entire
current infrastructure stock.2
To ensure sustainable development and stabilise climate change, this infrastructure needs to beboth low-carbon and resilient to climate change without compromising the kind of economic
growth needed to improve the livelihoods and well-being of the world’s most vulnerable citizens.
Ensuring that new infrastructure is low-carbon is estimated to raise annual investment needs by
3–4%. 3 Climate adaptation needs add another significant amount of investment, which isestimated at USD 280–500 billion per annum by 2050 for a 2-degree Celsius scenario.4
Traditional sources of capital for infrastructure investment (governments and commercial banks)
are insufficient to meet capital requirement needs to 2030; institutional investors, particularly
pension and sovereign wealth funds, are increasingly looked to as viable actors to fill thesefinancing gaps. Bonds offer relatively stable and predictable returns, with long-term maturities.
This makes them a good fit with institutional investors’ investment needs.
“Labelled” green bonds are bonds where the proceeds are used for green projects and assets,
mostly climate change mitigation and/or adaptation projects, and the bonds have been marketed
accordingly. An increasing number of institutional investors have been guided to avoid carbonintensive investments or projects that might increase or be exposed to climate risk. The rapid

1

According to Climate Tracker, under current policies we could expect 3.1-3.7ºC:
http://climateactiontracker.org/global.html
2
The Global Commission on the Economy and Climate (2016). The Sustainable Infrastructure Imperative: Financing
for Better Growth and Development. Available from: http://newclimateeconomy.report/2016/wpcontent/uploads/sites/4/2014/08/NCE_2016Report.pdf
3
The Global Commission on the Economy and Climate. Better Growth, Better Climate. Available from:www.newclimateeconomy.report
4
UNEP (2016). The Adaptation Finance Gap Report.

Version 3.3 | August 2022

5

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

growth of the labelled green bond market has shown in practice that the bond markets provide a
promising channel to finance climate investments, expanding the pool of investors and funds
available.

1.2.

Water infrastructure as part of that vision

Given these trends, water-intensive investments present new risks and opportunities. Modern
economies are already deeply water intensive: freshwater resources are essential for meeting
water supply and sanitation needs, for most types of energy production, for agriculture, for
terrestrial, aquatic, and near-shore marine ecosystems, and for industrial and manufacturingneeds.
However, water and water infrastructure will play an even more fundamental role in resilient, lowcarbon economies. Many investors and decision makers view water strictly as a “sector” — watertransport, treatment, and storage. However, water is also an enabling natural resource that spansmany sectors. Water is an economic and ecological “connector” for a wide range of sectors.
Statistics that highlight “water” in the bonds market are largely tracking traditional water sector
projects, while water-intensive investments are found across a wide range of other categories.
From a climate mitigation perspective, water and water infrastructure often have a deep
connection to carbon emissions. 5 Most forms of energy generation are water intensive, whilewater treatment and movement (e.g., irrigation, transport) are themselves energy intensive.
Therefore, efforts to reduce the energy consumed and/or the amount of water treated or moved
can all have very significant impacts on greenhouse gas emissions and make important
contributions to rapid decarbonisation of the global economy.
In contrast, climate adaptation and resilience are emerging aspects of water management. Water
infrastructure assets that are designed and operated to ensure adaptation and resilience are thenewest type of water investments, while nature-based approaches to integrating ecosystems into
water management systems or developing ecosystems as water “solutions” for flood control andwater treatment and storage are also growing more widespread. Adapting existing and natural
systems to future climate or building and integrating green, grey, and hybrid solutions to ensure
effective adaptation are essential given the primacy of water in modern economies.
At the most basic level, climate change means that water quality, quantity, and the timing of its
availability are evolving and will likely continue to do so for decades or centuries. The ability ofwater infrastructure — both grey or green — to provide robust, reliable services is essential tomeet sustainable development goals (SDGs) and NDC (UNFCCC Nationally Determined
Contributions) commitments, as well as the commitments of the 2015 Paris Agreement.

5

Rodriguez, Diego J.; Delgado, Anna; DeLaquil, Pat; Sohns, Antonia. 2013. Thirsty Energy. Water Papers;. World
Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/16536.

Version 3.3 | August 2022

6

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

1.3.

The Goals of the Climate Bonds Standard and the Water Infrastructure Criteria

The global green bond market grew from USD11.5bn in 2013 to over USD266.1bn in 2019 (USD1
trillion cumulatively as of December 2020). Water infrastructure–related bonds are growing in linewith this overall market growth, with USD30bn of bonds related to sustainable water management
issued in 2017, up from USD12bn in 2016.6 There has been USD98.7bn of cumulative investment
in water infrastructure in green bond use of proceeds7.
In the absence of clear and widely accepted definitions around the meaning of a “green” label,the green bond market’s rapid growth has raised some questions around the environmental
claims of these bonds and the potential for ‘greenwashing’: the use of bond proceeds that havelittle or uncertain positive environmental value. Weak or false claims can both shake confidence
in the market and hamper efforts to finance a transition to a low carbon, climate resilient economy.
The Climate Bonds Standard and Certification Scheme is a tool to address greenwashing. It
allows investors and intermediaries to easily assess the claims for the climate value of bonds,
and to identify and invest in credible climate compatible assets/projects. Certification promotes
transparency and effective communication.
The Climate Bonds Initiative convenes scientists, engineers, investors and other specialists inexpert committees to develop clear, evidence- and research-based scientific criteria on what is‘climate-compatible’. Only bonds which meet these Criteria can be certified. The associatedCertification scheme provides assurance on the climate credentials of Certified Climate Bonds byoffering certification only where independent verifiers determine that the bond is aligned withrequirements of the Climate Bonds Standard.8
In this context, the Water Infrastructure Criteria under the Climate Bonds Standard are intended
to communicate to investors what water-related investments are resilient, effective, andsustainable over their operational lifetime. In addition, the Water Infrastructure Criteria provide
issuers with a means to clearly differentiate their green bond offerings from non-certified
issuances. By establishing this screening tool, the intention is to maintain transparency andcredibility with respect to water-related bonds in the green bonds market.
A key objective has been to close the large gap between the credibility of labelling green andclimate bonds in the finance market and the broader water management and science community.
Significant shifts are occurring in how water-related projects are developed, incubated, anddesigned, particularly with reference to climate change. It is essential that these shifts are fullyreflected in investment decisions.
‘Green Bond Highlights 2017’, available at https://www.climatebonds.net/files/reports/cbi-green-bonds-highlights2017.pdf
7https://www.climatebonds.net/2020/12/1trillion-mark-reached-global-cumulative-green-issuance-climate-bonds-dataintelligence
8
The Climate Bonds Standard has requirements on use of proceeds (alignment with green definitions based on
sector criteria under the Standard), management of proceeds, reporting and disclosure, and external review. The
Standard is aligned with the requirements of the Green Bond Principles (GBP).
https://www.climatebonds.net/standards/standard_download
6

Version 3.3 | August 2022

7

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

The scope of the Water Infrastructure Criteria in terms of assessing climate impacts includes bothclimate change mitigation and climate adaptation and resilience. Box 1 outlines what mitigation
and adaptation might mean in the context of water infrastructure investments, highlighting thepotential for confusion between policy makers, investors, customers, and water managers due todifferent understanding of key terms.

Box 1: Climate mitigation, climate adaptation, and mitigating impacts
Terminology differences between the policy, investor, and water management worlds can beenormous in the context of climate change, especially around the terms “adaptation” and“mitigation.”
In a climate policy context, climate mitigation refers to efforts to reduce rates of greenhouse gas
emissions and/or to lower the concentration of greenhouse gases in the atmosphere. Climate
mitigation projects include shifts to low-carbon energy generation sources, such as solar power
and wind, or avoiding carbon-emitting activities such as deforestation. Climate mitigation has
occupied the overwhelming amount of climate policy efforts within global governance and has
also been the primary focus of national level climate policy in most wealthy and middle-income
countries.
For many in the water community, however, the term “mitigation” refers to reducing or offsettinga negative impact, such as creating a new wetland following the destruction of a marsh in thecourse of implementing an infrastructure project.
The water community’s definition of mitigation is actually closer to the policy meaning of climate
adaptation, which refers to efforts to address negative climate impacts like increased drought
frequency, sea level rise or earlier snowpack melt. Unfortunately, some climate adaptation
literature also refers to “mitigating climate impacts” (i.e., reducing negative impacts) but without
any intended allusion to greenhouse gases (climate mitigation). Worse, the term “adaptation” isalso widely used in biology and natural resource management to refer to concepts that have little
relevance to climate adaptation, though both definitions can sometimes be found in single
documents that reference climate change and ecosystems.
For clarity and consistency, this document will exclusively employ the climate change policy
frame of reference for “mitigation” and “adaptation.”

1.4.

How the Water Infrastructure Criteria Were Developed

The Water Infrastructure Criteria were developed and rolled out in three phases.
Phase I developed eligibility Criteria for engineered or built water infrastructure for the purposesof water collection, storage, treatment, distribution, and flood and drought defence. These Criteria
were released in October 2016. To date, five bonds have been certified by demonstrating

Version 3.3 | August 2022

8

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

compliance with these Criteria, four from the San Francisco Public Utilities Commission (USA)and a fifth from the City of Cape Town (RSA).9
Phase 2 began in April 2016 with the objective to develop complementary Criteria for naturebased solutions, which includes green and hybrid water infrastructure for such purposes as watercollection, storage, treatment or distribution, flood protection, and drought resilience. These
Criteria were released for use in the green bond market in March 2018.
Phase 3 began in August 2020 and provided scientifically robust and ambitious criteria fordesalination plants. It was determined that Version 1 of the Water Criteria did not sufficiently
capture the climate impacts of such assets. Specific criteria therefore would provide requirements
for seawater and brackish water desalination. These Criteria were released in January 2021.
The Climate Bonds Initiative first convened two groups to develop these Criteria: a Technical
Working Group (TWG) and an Industry Working Group (IWG). Appendix 1 lists the more than 100
members of these groups. A separate TWG was convened for the Desalination Criteria, with theoriginal Water TWG and IWG providing feedback and approval.
The TWG is a group of key experts from academia, international agencies, industry and NGOs
across a wide range of water expertise, selected for their insight into sustainable water
management, often (but not always) with additional experience or knowledge around climate
adaptation, resilience and/or mitigation issues relevant to water resources management. The
TWG drafted the proposed Water Infrastructure Criteria, which detailed technical criteria for theeligibility of water infrastructure assets and projects as well as guidance on the tracking of
eligibility status during the term of the bond.
These Criteria were further refined through engagement with finance and industry experts who
have or might in the future be involved in the process of issuing, assessing, or investing in a waterrelated green or climate bond. As such, the IWG provides an industry voice about practicality andrelevance. Special climate knowledge was not assumed with the IWG members, whose role is toreview the Criteria and provide feedback based on the utility of the Criteria, refine its scope, as
well as gauge potential demand and industry interest. A consensus based approach has been
followed to reflect the issues, demands, and insights of both the IWG and TWG.
The Criteria were also released for wider public consultation. Final approval of the Criteria has
been given by the Climate Bond Standards Board.
The purpose of this Background Paper is to give an overview of the Water Infrastructure Criteria
and highlight opportunities for climate mitigation and adaptation, providing context to the work of
the Water and Desalination TWGs under the Climate Bond Standard and Certification Scheme.
It summarises the issues considered by the TWGs in developing the Water Infrastructure (andDesalination) Criteria, explaining how these issues have shaped the development of the Criteria.

9

For more information on these bonds, see https://www.climatebonds.net/standards/certification

Version 3.3 | August 2022

9

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Those involved in the development of these Criteria over a five-year period have undertaken acomprehensive vision. It is, however, acknowledged that revisions will be needed over time. We
emphasise that the Criteria may be amended either due to public feedback or future
developments in water management and policy. However, amendments to the Criteria will not beapplied retrospectively to bonds already certified under prior versions of the Criteria.
That said, these Criteria represent a significant shift in how the bonds market views water-related
investments and the best mechanisms for communicating risk, confidence, and relevance
between issuers, investors, and other key audiences that may also be important.
These Criteria will be reviewed annually by the Climate Bonds Initiative and other guiding partners.
They are likely to be revised and refined over time as more information and insight becomes
available — both as we learn more about the application of the Criteria to growing numbers ofbonds, and how these Criteria relate to other sectoral areas.
In particular, we expect that some new applications such as nature-based solutions will become
more mainstream and widespread, leading to more and more robust asset classes such as aquifer
storage and groundwater recharge. Our hope too is that these Criteria themselves can help leadto a wider appreciation and more consistent application of climate vulnerability assessments andthe development of adaptation plans.
In all cases, we appreciate suggestions and observations that we can consider during the revision
process. Please contact us if you have questions or recommendations.

2.

Water infrastructure in the context of climate change

2.1.

What is water infrastructure

Modern and developing economies “float” on water resources and the infrastructure and natural
capital necessary for energy production, the supply and storage of water resources, irrigation andaquaculture, disaster management and avoidance, and industrial and management applications.
Within the context of the Criteria, “infrastructure” does not always refer to manufactured or built
assets made of concrete, stone, and steel. Biological and geological systems - often referred toas eco-hydrological systems - have always provisioned a wide range of ecosystem services forhuman settlements. Throughout the full range of the water cycle, eco-hydrological systems are
the original “water infrastructure” - rivers and lakes, as well as aquifers, groundwater, snowpacks
and glaciers, and the living and non-living systems that compose ecosystems. This ‘nature-based’
water infrastructure is essential for a wide range of water services and is increasingly being
integrated within formal water management systems as green and hybrid infrastructure.

Version 3.3 | August 2022

10

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

For this reason, while Phase 1 of the Criteria focused on built or engineered water infrastructure,
Phase 2 of the Criteria extended the Criteria to include green, nature-based, or natural
infrastructure. This includes the use of ecosystems and ecological processes to deliver water
services, (such as the use of wetlands for water treatment and the use of biophysical structures
for water storage, such as aquifers), as well as hybrid infrastructure (which blends built and green
solutions, such as “room for the river” flood control solutions that mix ecosystems with built levies).
Additional detail is available below on the potential range of investments relevant within eachfunction and sectoral Criteria.

2.2.

Water infrastructure and climate change

All economies are deeply water intensive. Freshwater resources are essential for meeting watersupply and sanitation needs, for most types of energy production (hydropower and thermal energy
systems, as well as most solar and geothermal), for agriculture (especially irrigated farming andaquaculture), for terrestrial, aquatic, and near-shore marine ecosystems, and for industrial andmanufacturing needs. Clean water is also essential also for health and sanitation purposes. Water
use patterns tend to change with economic growth: in most developing economies, agriculture
consumes 70 to 80% of national-level water resources, while the energy sector often uses morethan 50% of water resources in countries such as the United States, France, and Japan. 10
Water is also viewed as a resource essential to meeting the 2030 Agenda for Sustainable
Development and the SDGs (Sustainable Development Goals). 11 Water is most prominently
named in SDG 6, but many others such as SDGs 2 (hunger), 7 (energy), 11 (urban resilience),
13 (climate change), and 15 (ecosystems). Achieving these goals fundamentally requires longterm sustainable (and climate resilient) water resources management.
The connections between water resources, economic development and sustainability are
relatively clear, but the relationship between water and climate change may be less obvious.
Climate change and variability have always been important drivers for biophysical systems,
including for all human history and pre-history. However, anthropogenic climate change is altering
most aspects of global and regional climate, including the water cycle.12 The water cycle has
proven to be both extremely sensitive to climatic fluctuations and very difficult to predict withconfidence. Indeed, water is so important to human activities and economies that it has beencalled the “medium through which humans will experience most of the negative impacts of climate

10International Energy Agency. 2016. Water Energy Nexus. Paris: OECD/IEA.
https://www.iea.org/publications/freepublications/publication/WorldEnergyOutlook2016ExcerptWaterEnergyNexus.pdf
11
For instance, see Matthews, et al., 2017. A Thirst for Food Resilience: Climate-Smart Water Knowledge Integrates
UNFCCC and SDG Policies for Food and Agriculture. Global Water Forum.
http://www.globalwaterforum.org/2017/11/16/a-thirst-for-food-resilience-climate-smart-water-knowledge-integratesunfccc-and-sdg-policies-for-food-and-agriculture/
12Refers to the process through which water moves between the oceans, atmosphere, and surface and groundwater.

Version 3.3 | August 2022

11

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paperchange.”13 The World Economic Forum has called out water and the failure to adapt to climatechange as two of the most dangerous threats facing economies today.14
Water infrastructure and ecosystems represent special challenges under these conditions
because (a) they tend to remain on the landscape for climate relevant timescales, extending fromdecades to centuries (and even millennia in some cases), and (b) our management decisions andprocesses tend to be based on analyses of past rather than of emerging future conditions, which
may be quite different than even the recent past. The long-held assumption that the past can
predict the future, sometimes referred to as “stationarity”, represents a serious challenge in how
we manage our economy and define ecological sustainability. 15 If we keep building and managing
water with an assumption of stationarity, we will see our infrastructure fade in efficiency andreliability and potentially fail catastrophically – patterns already evident in assets that are decades
old.
While growing gaps in the “fit” between our ambient climate and existing water infrastructure areserious cause for concern, the rise of new approaches to resilient water management (including
nature based solutions) represents a positive new vision for sustainable economies that can both
adjust and adapt to emerging climate conditions and continue to slow the rate of climate change
through lower greenhouse gas emissions. Water is both a symptom of a deep problem and theprimary instrument for new solutions.

2.2.1. Water and Greenhouse Gas Emissions
From a climate mitigation perspective, water and water infrastructure often have deep
connections to carbon emissions.16 For instance, pumping groundwater or water from reservoirs
to consumption points (cities, farms, energy production sites) can be very energy intensive given
the volume and density of water resources and the distance covered. Distances of dozens tohundreds of kilometres are common for water transfers. Depending on the energy source, moving
water may be highly GHG emissions intensive.
Likewise, water treatment facilities and processes can be especially “thirsty” for energy.17 Thiscan include urban wastewater, agricultural and industrial effluent treatment, desalinisation of sea
water and some types of groundwater, where water quality is altered to meet some targets for
acceptable use or for re-entering the environment.

13

Grey D, Sadoff C. W (2007) Sink or swim? Water security for growth and development. Water Policy 9: 545–571.D.
GreyC. W. Sadoff2007Sink or swim? Water security for growth and development. Water Policy
14
World Economic Forum. 2017. Global Risks Report 2017, 12th edition. Geneva: World Economic Forum.
http://www3.weforum.org/docs/GRR17_Report_web.pdf
15
Matthews JH, Wickel BA, Freeman S (2011) Converging Currents in Climate-Relevant Conservation: Water,
Infrastructure, and Institutions. PLoS Biol 9(9): e1001159. https://doi.org/10.1371/journal.pbio.1001159
16
World Bank Group. 2016. High and Dry: Climate Change, Water, and the Economy. World Bank, Washington, DC.
https://openknowledge.worldbank.org/handle/10986/23665
17
Rodriguez, Diego J.; Delgado, Anna; DeLaquil, Pat; Sohns, Antonia. 2013. Thirsty Energy. Water Papers. World
Bank, Washington, DC. https://openknowledge.worldbank.org/handle/10986/16536

Version 3.3 | August 2022

12

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Therefore, efforts to reduce the energy consumed and/or the amount of water treated or moved
can all have very significant impacts on greenhouse gas emissions and make a significant
contribution to rapid decarbonisation of the global economy.

2.2.2. Adapting Water Management to Climate Impacts
The impacts of climate change on the water cycle can be complex. Shifts in the frequency andseverity of droughts, flooding, and tropical cyclones are obvious trends that have been widely
identified, but even these can be difficult to predict and prepare for in advance with confidence.
These issues are arising in both the developed world (often with existing infrastructure) and in thedeveloping world (where many bond issuances are for new investments). In both cases, climatechange issues are becoming critical for water investors and decision makers.
For instance, in 2015, the U.S. states of California, Oregon, and Washington experienced asevere drought which the scientific literature linked to climate change.18 In California, the amountof precipitation was well below average, while Oregon and Washington, to the north of California,
received relatively normal amounts of annual precipitation. Their winter precipitation fell more asrain instead of a mix of both rain and snow in 2014–2015, while elevated air temperatures
accelerated evapotranspiration and snowpack melting rates. The lack of snowpack and earlyrunoff caused by higher temperatures exacerbated water scarcity across all three states. Drastic
rationing was required by cities, farmers, and many industries, and both thermal and hydropower
supplies were constrained. Record-level forest fires proliferated across the region.
California, in particular, was not prepared for the extent and severity of the drought nor its
economic and ecological consequences. The drought revealed that many water-related
investments had been conceived and managed in relative isolation from each other and without
much consideration of how climate change could alter operations and management decisions
between upstream and downstream stakeholders. The winter of 2016, however, saw a sudden
shift to record-setting rains across all three states, abruptly ending the drought and transitioning
to severe flood conditions that in a few cases surpassed the design conditions of major
infrastructure. The partial failure of the Oroville Dam in northern California forced the evacuationof several hundred thousand nearby residents.19
Such a range of extreme impacts is completely novel in the experience of most decision makers
and investors. Urban infrastructure, energy generation, agriculture, the forest fire regime, andenvironmental management trade-offs are all affected. Water managers and investors are looking
more broadly than the individual footprint of any given project at a wider range of future conditions
that may arise as a result of climate change.
Other common impacts from climate change on the water cycle include:

18
19

Source: http://www.ldeo.columbia.edu/news-events/warming-climate-deepening-california-drought
Source: https://www.nytimes.com/2017/02/14/us/oroville-dam-climate-change-california.html

Version 3.3 | August 2022

13

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper•••

Shifts in the timing and seasonality of precipitation, a pattern already seen in areas suchas South Asia with increasing variability in the Indian monsoon
Shifts in the qualities of so-called climate engines such as the El Niño Southern Oscillation(ENSO) and the Pacific Decadal Oscillation (PDO) that influence precipitation over muchof the earth’s surface
Water quality impacts, such as those seen in China's Yangtze basin, where more frequentand intense eutrophic conditions (which support algal blooms) are now observed even in
winter.

In parts of the world such as South Asia, where climate change rates are quite high, even newinvestments for water storage, treatment, and irrigation are at high risk of disconnecting from their“intended” climate conditions over a matter of a few years, endangering the services they wereintended to provide, water supplies for other stakeholders, the confidence of investors, and thesustainability of those investments against environmental conditions.
In the energy sector specifically, many large water-intensive energy production facilities which are
more than 30 or 40 years old have begun to experience very significant impacts from climatechange as water conditions have diverged from their initial operating parameters. Increased
flooding, more intense droughts, and shifts in precipitation and snowpack patterns have become
significant enough in many regions to require major adjustments in operations and design. In
effect, many facilities have seen significant, sometimes enormous, drops in efficiency andcapacity, requiring large reinvestments to ensure that green energy targets can continue to be
met.20 New facilities face the same challenge if they have not been designed to be resilient acrossa range of potential future climate conditions.
Moreover, individual projects and investments cannot in most cases be resilient in isolation. Water
moves through basins and watersheds, and climate change is altering the hydrological cycle indifferent ways across these watersheds as well as the needs of diverse stakeholders. Agriculture,
ecosystems, and cities (among many other groups) have demands that are shifting between
upstream and downstream users. An emerging questions is how we allocate water resources
across water users and ensure that adjustments in supply and demand between users can bemade coherently and fairly even as needs and water conditions evolve over time. Gaps between
available and needed water resources have led to widespread conflicts, including some on acatastrophic scale.21
Given this context, climate adaptation and resilience are one of the most important new aspectsof water management. At the most basic level, climate change means that water quality andquantity and the “normal” seasonal variation are evolving and will likely continue to do so for
decades or centuries. The conditions are often difficult to predict with the level of confidence that

20

These stories are becoming quite common. Two well-documented stories come from Africa(https://www.nytimes.com/2016/04/13/world/africa/zambia-drought-climate-change-economy.html?_r=0) andCalifornia in the USA (https://www.nytimes.com/2017/02/14/us/oroville-dam-climate-change-california.html).
21
https://www.theguardian.com/world/2012/jul/31/india-blackout-electricity-power-cuts

Version 3.3 | August 2022

14

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

was assumed to be valid in the past. At the same time, the ability of water infrastructure to provide
robust, reliable services is essential to meet and continue to meet SDG and NDC commitments.
For financial analysts, assessing water-related investments’ exposure to climate risks has
previously been largely opaque and ill defined. However, awareness of the need to consider
climate risks related to water is growing rapidly and is now consistently identified as one of themost important threats to growth and profitability by groups such as the World Economic Forum.
But progress on consistent and effective methodologies to quantify such risks has been slow.
Investors are increasingly aware of these newly identified risks and seek assurance that “climatecompatible” investments are reliable, robust to diverse futures, and flexible in the face of
uncertainty. The Water Infrastructure Criteria are designed to communicate how these issues
have been addressed by the issuer, and to do so in a simple, clear format.

2.3.

Desalination today and in the future

Desalination as the industrial process it is known as today has been a source of fresh water since
the first half of the twentieth century. Both distillation and filtration technologies have been used
for much of this time. The traditional image of desalination was dominated by fossil fuel-driven
thermal techniques used by countries with high fresh water scarcity and easy domestic access tocheap fossil fuels. As such, in many regions, thermal desalination technology remains the mostcommon technology (fossil fuel-based thermal desalination produces two-thirds of the water fromseawater desalination in the middle east, for example) 22.
However, today membrane technology represents by far the dominant technology being used bydevelopers when building new desalination plants. In 2019, reverse osmosis (RO), a membrane
technology, accounted for 69% of the worldwide installed desalination capacity 23. Multi-stage flash
followed with 18%, and multi-effect desalination with 7%, both thermal technologies.
Considerable research goes into improvements to the industrial process of desalination. This links
closely to a plant’s costs as well as it’s sustainability. Improvements to a plant’s efficiency, which
may encompass developments in membrane technology or improved quality control of the overallsystem. Due to the thermal energy demands of thermal desalination technologies, they generally
have considerably higher energy consumption (lower energy efficiencies) than membrane
desalination 24 . Other improvements to a plant’s processes can include more efficient pretreatment processes or reducing the conveyance requirements of the treated water.
The water produced from desalination can serve a range of uses including municipal drinking
water, water for irrigation in agriculture or cooling water for other industrial processes. The
feedwater for desalination can also be sourced in a range of different ways. The most common is
22Found here: https://www.iea.org/commentaries/desalinated-water-affects-the-energy-equation-in-the-middle-east
Cherif, H. and Belhadj, J., 2018. Environmental Life Cycle Analysis of Water Desalination Processes.
In Sustainable Desalination Handbook (pp. 527-559). Butterworth-Heinemann.
23
24

Chae, S.H. and Kim, J.H., 2017. Integration of PRO into Desalination Processes. In Pressure Retarded Osmosis (pp. 129-151).
Academic Press.

Version 3.3 | August 2022

15

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

seawater desalination. It is unclear how many plants are in operation globally today, but various
studies cite between 15,000 and 19,000 desalination plants operational today globally. Jones etal. (2019), a recent overview of desalination, estimates around 16,000 plants with a global
installed capacity of around 95 million m 3 per day. Of this, 61% is seawater desalination, followed
by brackish water at 21%. In terms of the geographical distribution of desalination, by far the mostdesalination plants are located in the Middle East and North Africa (roughly 48 of global capacity).
East Asia and the Pacific (roughly 18%) and North America (roughly 12%) follow some way behind.
With membrane-based desalination being the overwhelming technology preference today for new
desalination plants, this carries opportunities for new energy sources for decarbonisation. A
sustainable development scenario development by the IEA suggests that, for the Middle East,
renewable energy powering desalination will need to increase from 0.7% in 2016 to 41.4% in 2040
to be in line with the Sustainable Development Scenario (SDS). However, the New Policies
Scenario, which reflects the impact of existing policy frameworks and today’s announced policy
intentions, projects a far less ambitious situation for renewable powered desalination. This would
be significantly inadequate to align desalination with the Paris Agreement and limiting global
warming to 1.5-degrees.

Table 1. IEA projections of the necessary energy mix for desalination in the Middle East to bealigned with the Paris Agreement
Concentrated
Solar Power

Renewables

Nuclear

Fossil Fuel

Oil

Natural
Gas

2016

0%

0.7%

0.2%

67.2%

9.3%

22.6%

SDS in 2040

3.2%

41.4%

8.7%

15.3%

2.7%

28.8%

From 2016 – 2021, an investment of US$10 billion in desalination was expected. This would haveadded roughly 5.7 million cubic meters per day of new production capacity, which is expected to
double by 2030. This projected increase underlines the importance of addressing the energy mix
powering desalination to avoid subsequent increases in emissions associated with the sector.
The long asset lifetime of desalination plants (25+ years) also makes the avoidance of fossil fuellock-in of equal importance.

2.4.

Desalination and climate change

A combination of population and economic growth, increased water consumption per capita anddiminishing water supplies due to climate change and pollution, is intensifying fresh water scarcity

Version 3.3 | August 2022

16

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paperin most regions25. Though not a silver bullet for water management, desalination represents a
unique solution with high potential for provision of resilient water supply. The complex challenges
facing the water sector means that a host of water management techniques must be consideredon a regional and local scale that will best maximise their specific application and strengths.
Desalination of seawater and brackish water can provide an unconventional yet reliable watersupply to both large and small populations, independently without having to rely on an upstream
supply from elsewhere or exhaust a non-replenished aquifer.
However, desalination brings with it a unique set of issues compared to other water management
techniques. Typically, desalination plants require large amounts of energy which is generally
created from fossil fuel sources, leading to significant amounts of emissions associated with thewater produced. As such, while they can have positive effects on water supply, desalination plants
have historically played a largely negative part in emissions mitigation. With desalination projected
to experience considerable increases in its adoption globally, emissions associated withdesalination are at risk of rising further. As a fraction of the world’s energy consumption and GHG
emissions, desalination was less than 0.2% of worldwide energy consumption in 2013 26. Despite
this, the projected increases in capacity, along with the need to decarbonise all parts of theeconomy, make climate action in the sector crucial.
A study by Lienhard et al. (2016)27 explored the potential for low carbon desalination. The majorityof emissions from desalination come from the energy used to generate the electricity or thermalenergy which powers the plant (scope 2 emissions). The study provides figures on the
representative direct GHG footprint of different types of desalination plants:

Table 2. GHG footprints of different technology categories of desalination (Lienhard et al., 2016)
Representative Direct GHG Footprint kg CO2 per m 3(1000 L) fresh water
Reverse osmosis (RO)

2.1 – 3.6

Multi-effect Distillation with
Thermovapor Compression (MEDTVC)
Multistage Flash (MSF)

8 – 1610 – 20

Thermal technologies such as MSF are most emissions intensive as they directly utilise fossil
fuels to heat the water for desalination and are less energy efficient. As membrane technologies
such as RO are powered by electricity, not only are they more efficient, but they can also be
powered by renewable energy, an increasingly common practice.

25
26
27

Richter et al. (2013); Djuma et al. (2016); Damania et al. (2017)
Found here: https://jwafs.mit.edu/sites/default/files/imce/workshops/2016/Desalination/Desalination_Summary.pdf
Ibid.

Version 3.3 | August 2022

17

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

As such, the main opportunities for decarbonising the industry lie in either improving the energy
efficiency of a plant and thus reducing its energy requirements or increasing the amount of energy
sourced from renewable energy. Today, available desalination technologies have resulted insignificant improvements in energy efficiency, while developments in renewable energy represent
an opportunity for desalination plants to shift their energy source to carbon neutral sources.
Desalination therefore has the potential to be a key component of global climate, and therefore
water, resilience assuming technological and clean energy advances can be appropriately
integrated.

3.

Green Bonds for Water Infrastructure

3.1.

Funding needs for Water-Intensive Investments: A Shifting Policy and Investment
Context

Water investments have been highlighted globally through the 2030 Agenda and the SDGs, which
depend heavily on water resources to meet targets for access to clean water, effective healthcare,and energy and food security.
In 2015, the international community, under the auspices of the UN Framework Convention on
Climate Change (UNFCCC), set out targets in the Paris Agreement to slow the rate of climatechange. National goals under the Paris Agreement are defined through a new instrument called
Nationally Determined Contributions (NDCs). More than 80% of the NDCs to date explicitly
mention water as necessary to meeting climate mitigation and adaption goals, and new andupdated water infrastructure will be critical to meeting both NDC and global climate targets.
Annual global investment in water is estimated to be USD1-2 trillion, including construction,
operations, maintenance of new infrastructure, and upgrades to existing assets over many sectors.

3.1.1. Investment need for desalination and current financing
The global water desalination market is estimated to be valued over USD 32 billion by 202528. In 2016,
an estimated USD 6.2 billion in capital investments were made in desalination 29. Of this, 47 percent(US$2.9 billion) were financed using ‘Build-own-operate-transfer’ (BOOT) schemes. Here, the private
partner finances the desalination facility and operates it for a long period of time, usually 20 to 25 years,
in exchange for tariff-based payments linked to plant capacity and actual water demand. The contracts
for these projects are awarded to the bidder with the lowest tariff30. Alternatively, delivery methods
may include “engineering, procurement, and construction” (EPC), in which the private contractor is28

https://www.globenewswire.com/news-release/2020/01/29/1976640/0/en/Water-Desalination-Market-to-grow-at-a-CAGR-of-9-5to-hit-32-billion-by-2025-Global-Industry-Analysis-by-Growth-Factors-Value-Chain-New-Technologies-Cost-breakdown-InvestmentsOppo.html
29
Based on figures cited in: http://documents1.worldbank.org/curated/en/476041552622967264/pdf/135312-WP-PUBLIC-14-32019-12-3-35-W.pdf
30://documents1.worldbank.org/curated/en/476041552622967264/pdf/135312-WP-PUBLIC-14-3-2019-12-3-35-W.pdf

Version 3.3 | August 2022

18

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

responsible for the design and the construction of the facility; or the “design-build-operate” method(DBO), in which the contractor is responsible for the operation of the plant for a limited number ofyears.
Bank debt and bond financing are the primary sources of funding in desalination. Equity may be 100%
public or private or a mixture, depending on the nature of the public-private partnership involved in theimplementation of the project. In the Middle East, for example, DBO projects are loan financed,
whereas larger projects have mixed debt and equity financing. Building and developing new, more
efficient and environmentally friendly desalination plants will thus require substantial amounts ofcapital. The finance gap can be at least partially filled by climate bonds which focus on climate friendly
measures in plants which also reduce their own operation costs.
Currently, no projections or scenarios have been developed that explore the investment needed fordesalination to align with the Paris Agreement or with IPCC warming scenarios.

3.2.

Bond issuances to date

The green bond market emerged in 2007- 2008 with bonds issued by the World Bank andEuropean Investment Bank (EIB). From 2007-2012, the market mainly featured developmentbanks such as the EIB, IFC, and World Bank. As the market grew, there has been increasing
diversification of both issuers and investors. In 2017, the labelled green bond market amounted
to USD349.5bn outstanding, rising to USD1tn in 2020. Issuance in 2019 alone was in excess of
USD266.1bn – a record high.31
Looking at water-related bonds in particular, USD23bn of green bonds relating to sustainable
water management were issued in 2019, up from USD20bn in 2017. Overall, this sector
represented 9% of all green bonds issued in 2019, which is a decrease from 13% in 2017.
The proceeds of these water related bonds have been allocated to various water infrastructure
assets/projects including water treatment with a focus on waste and drinking water upgrades;
flood protection such as investment in levees, storm sewers, sea walls and other flood defences;
restoration of natural water services and water efficiency and conservation; and other generalwater authority adaptation upgrades.
In the US, several labelled green bonds related to water infrastructure assets have been issued.
An early issuer was DC Water, which came to market in 2014 and has subsequently returned tothe market in 2015 with a USD100m issuance. Authorities with green bonds include a variety ofstate/provincial and city government entities: Massachusetts Clean Water, Indiana, New York, St.
Paul in Minnesota, Connecticut and New Jersey. Four bonds totalling over USD1bn have been
issued by San Francisco Public Utilities Commission, which were certified against the Climate
Bonds Standard under the provisions of Phase 1 of these Water Infrastructure Criteria.

‘Green Bond Highlights 2017’ available at: https://www.climatebonds.net/files/reports/cbi-green-bonds-highlights2017.pdf
31

Version 3.3 | August 2022

19

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

One more notable bond issuance example certified under Version 2 of these Water Infrastructure
Criteria was that of Central Arkansas Water (CAW). The US municipal green bond of USD31
million was used to buy and protect forests in order to secure clean drinking water.

Figure 1: Use of proceeds of green bonds issued since their inception

Box 2 below provides further clarification on the nature of green and climate bonds, vis-à-vis
regular “vanilla” bonds.

Version 3.3 | August 2022

20

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Box 2: Climate Bonds, Green Bonds and Blue Bonds
Green bonds are just like regular (or “vanilla”) bonds in that they are issued by a public or private
entity, which guarantees to repay the bond over a certain period with interest. Green bonds,
however, have one distinguishing feature over regular bonds: proceeds are explicitly earmarked
for projects or assets with environmental benefits.
The idea of a climate bond is an extension of the green bond concept. The use of proceeds in a
climate bond are earmarked for assets and projects with clear climate change benefits forclimate mitigation, and climate adaptation and/or resilience.
“‘Blue bonds” is a label sometimes used to refer to bonds driving capital toward water-related
projects and assets. In reality, there is much overlap among green, blue and climate labelledbonds. Many green bonds are used specifically to fund climate mitigation and adaptation assets
and projects. Further, as climate bonds move into climate resilience considerations, they are
increasingly incorporating a range of traditional sustainability impacts. Blue bonds are green or
climate bonds that emphasise the water (‘blue’) component of the investment.

3.2.1. Bonds in the Desalination sector
Notable bonds and loans issued to finance desalination projects include the USD758 million project
finance loan by ACWA Power and Natixis. With a contractual tenor of 32.4 years, this finances theTaweelah Independent Water Plant (IWP) which, when completed in 2022, will be the largest reverse
osmosis plant in the world32. Vigeo Eiris provided a second party opinion for the loan, moreover. It isclaimed the plant will use the lowest amount of energy per cubic metre of water produced of any
desalination plant. Spanish construction company Grupo ACS issued a EUR750 million green bond,of which 12% would be designated partially to desalination projects in the UAE, Peru and Africa33. The
California Pollution Control Financing Authority issued a USD756 million bond to finance the Carlsbad
Desalination Plant in San Diego34.

3.3.

Growing credible green finance for water

The rapid growth of the green bond market since 2012 has been met with questions around theenvironmental claims of these bonds. In the absence of clear and widely accepted definitions
around what qualifies as “green”, many investors have raised concerns about ‘greenwashing,’
where bond proceeds are allocated to assets that have little or uncertain environmental value.
Such concerns can both shake confidence in the market and hamper efforts to finance a transition
to a low carbon and resilient economy. High and credible standards are necessary for thesustainability of the broader market and for maximum environmental impact.
32

https://www.waterworld.com/international/desalination/article/14169801/taweelah-iwp-obtains-the-first-ever-sustainable-loanqualification-for-desalination-project
33
https://www.globalwaterintel.com/news/2018/14/acs-green-bond-to-fund-desal-on-three-continents
34
https://www.businesswire.com/news/home/20131205006552/en/Carlsbad-Desalination-Project-is-Named-%E2%80%9CDeal-ofthe-Year%E2%80%9D-by-The-Bond-Buyer

Version 3.3 | August 2022

21

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

The Climate Bonds Standard Water Infrastructure Criteria ensure the environmental value ofcertified assets and define both low carbon and climate resilient water infrastructure, including
nature-based solutions. The Criteria focus on both the climate mitigation and the adaptation andresilience aspects of water infrastructure assets, as well as their impact and benefits on
ecosystems from those investments. The vision of “green” here includes both the asset being
financed and the larger eco-hydrological context of that asset over its operational lifetime.
Certifying a water-related green bond under the Climate Bonds Standard Water Infrastructure
Criteria provides assurance on the climate and water sustainability credentials of those bonds.
Certification allows issuers to demonstrate to the market that their water bond meets bestpractices for the claims of the climate integrity, management of proceeds, and transparency,
making it easier for investors and intermediaries to identify and invest in low carbon and climate
resilient water infrastructure assets/projects with genuine water and climate benefits.

4.

Key issues considered in the Water Infrastructure Criteria

4.1.

Scope of the Water Infrastructure Criteria

4.1.1. What assets and activities should be covered by these Criteria?
The Water Infrastructure Criteria apply to a wide range of water assets and projects, spanningindustrial water efficiency, water treatment and reuse including water utility functions, aquatic
ecosystem restoration and management, and water supply systems. In addition, assets andactivities designed to ensure adaptation and resilience are the newest type of water investments,
and as such, were deemed to be a major target for the
Water Infrastructure Criteria.
That is, the Criteria cover assets and activities relating to:
•
•
•
•
•
•
•
•
•

Water monitoring: real-time and remote sensing approaches to understand shifts in water
quality and quantity, including early warning systems for extreme events;
Water capture and/or transfer: retaining water moving across the landscape or facilitating
the bulk transfer of water resources;
Water storage: keeping water for later allocation and delayed use;
Water treatment: altering water to meet specific standards or the needs of stakeholders,consumers, or environmental applications;
Water desalination: though a form of water treatment, it is addressed separately in thescope of these Criteria
Flood defence: protecting against rising waters;
Drought defence: addressing water scarcity;
Storm-water management: coping with intense precipitation events, especially in urban
settings;
Ecological restoration / management: supporting intact or recovering damaged
ecosystems in a shifting climate.

Version 3.3 | August 2022

22

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

The Criteria can apply to both new assets and existing assets undergoing modification or repair,and those being refinanced.
They are also appropriate for a variety of construction types of water infrastructure, including:• Built or engineered infrastructure, which refers to traditional water infrastructure
investments. Examples include wastewater treatment plants, the use of concrete stormwater systems, and drip irrigation.
• Green, nature-based, or natural infrastructure, which includes the use of ecosystems andecological processes in order to deliver water services, such as the use of wetlands forwater treatment and the application of biophysical structures for water storage, such asaquifers.
• Hybrid infrastructure, which blends built and green solutions, such as “room for the river”
flood control solutions that mix ecosystems with built structures such as levees.
Therefore, it is expected that many bond issuers will include in their portfolios assets and activities
that span more than one sector, function and/ or construction type. The Criteria have beendeveloped to be flexible to all these circumstances.
Where necessary, guidance is given regarding the appropriate sections of the Criteria relevant
for specific components in a bond issuance.

4.1.2. What assets and activities are not covered by these Criteria?
Early in the development of the Criteria, hydropower represented a distinct cluster of issues
relating to both climate mitigation and climate adaptation. For instance, while hydropower is arenewable source of energy, the scientific and engineering literature illustrates a complex picture
in terms of the greenhouse gas impacts associated with water storage reservoirs associated withhydropower. As a result, the recognition of hydropower as a low-carbon energy source requires
detailed examination.
Moreover, the application of climate adaptation approaches to hydropower has been quite recent,with a growing but still small number of cases available and some controversy over the sensitivity,
exposure, and need to address climate impacts for existing and new assets. The path for futurehydropower development is an important but sometimes divisive issue, and some projects havebeen associated with significant negative environmental and social impacts. For the TWG, it was
unclear if these complexities around hydropower represented a significantly distinct break fromother types of water infrastructure assets since the group did not contain a large proportion ofhydropower specialists and experts.
As a result, hydropower related assets and activities are not covered by these Criteria. Readers
are directed to the forthcoming Hydropower Criteria, open for public consultation in March 2018.

Version 3.3 | August 2022

23

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Water infrastructure assets or activities directly serving one or both of the following are not within
scope of these Criteria:• Mining operations• Nuclear power
Rationale for this is consistent across all Climate Bonds sector criteria. The Climate Bonds
Initiative currently do not have robust Criteria for either of these sectors. In the absence ofcompetence or expertise on such sectors, the TWG chose to place such plants outside of the scopeof criteria to avoid controversial or problematic issuances. Until criteria of the same standards asother sectors exists for these, the Climate Bonds Initiative takes no stance and excludes themfrom scope.
Once criteria do exist for such sectors, the assumption is that, for any water infrastructure assets
seeking certification directly serving such purposes, the mine or nuclear plant would need to meettheir own respective criteria in addition.

4.1.3. Automatically excluded assets and activities under these Criteria
Automatic exclusions under these Criteria include assets or activities directly or explicitly
supporting fossil fuels, for example:• Integrated Water and Power Plants (IWPP)• Desalination plants providing water directly to fossil fuel power stations

4.1.4. How does this scope fit with other Sector Criteria under the Climate Bonds Standard?
The Water Infrastructure Criteria are intended to apply to a broad array of water investments andasset but there are some cases where other criteria such as Forestry/Agriculture or Transport
may be a more effective fit even when water resources are a fundamental aspect of theinvestment. Indeed, there may be some cases when these lines are unclear.
For instance, for an asset involving the use of riparian forests and wetlands, these ecosystems
may be managed for nutrient control for agricultural runoff (Forestry/Agriculture Criteria) as well
as for flood defence (Water Infrastructure Criteria). Forest management, energy, some types ofwater treatment, and other types of agricultural assets may all blur sector criteria. 35

35

The link between water quality, water quantity, and forest management is complex. Many progressive water
managers also consider themselves land managers, especially in forested areas, since land management can have asignificant impact on runoff patterns and water quality. Some researchers and management institutions also claim
important relationships between forest management and the ability to increase or alter runoff, water storage, andwater supply, though these claims are more controversial and probably specialized. In the future, we may see theemergence of offerings that integrate climate mitigation benefits from land management (e.g., forest and soil carbon
storage/sequestration) designed with a water quality benefit, but these concepts have not reached a stage where
they can be easily formulated and presented through finance vehicles such as bonds. A clear application of how tolink these areas has not been developed as of yet.

Version 3.3 | August 2022

24

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Where sector boundaries are not clear, the issuer should discuss with the Climate Bonds Initiative
to determine the best sector Criteria fit. Generally, the primary purpose should be the basis for
deciding on the appropriate Sector Criteria to apply.
In the case where a single issuance includes more than one asset in a portfolio and these assets
span a number of sectors, the most appropriate Criteria should be applied to the individual
underlying assets of the issuance. For example, a single bond offering may include both astormwater control project and (quite separately) a building energy efficiency project. These
individual projects may not even be directly linked except through the issuing authority and theirbundling within a single bond. Here, the stormwater project should be evaluated against the Water
Infrastructure Criteria, and the buildings energy efficiency project under the Buildings Criteria.

4.2.

What climate impacts are addressed in the Water Infrastructure Criteria?

Relevant to all sectoral Criteria, the Climate Bond Standard aims to screen for assets andactivities that:••

Align with a global economic transition that limits global warming to 1.5°C or less; and:
Are adaptable and resilient to unavoidable climate change.

For water infrastructure assets including nature-based solutions, climate resilience and theecological interactions of the investment are key concerns for long-term sustainability. If thedesign and operation of water projects do not anticipate shifting climate conditions (including therelationship of the water project with surrounding ecosystems), the reliability of water projects tofunction and be fit for purpose may be compromised. Climate change is altering the risk profile
for water projects across all geographies and asset types. In addition, the expectation for green
and climate bonds among investors is that these assets have an environmental benefit and/or aredesigned to minimise negative impacts on ecosystems.
Perhaps the best-known example of a major water project being compromised by changing
climate conditions is the Hoover Dam in the USA's Colorado River Basin. The dam was planned,
designed, and built in the 1920s and 1930s using assumptions of much higher mean river flows,
yet over the last several decades, the timing and amount of precipitation in the upper basin havebeen deviating substantially from these assumptions. Under these unanticipated conditions, thedam’s ability to supply water to regional cities, to generate hydropower, and to meet downstream
water demand is reaching operational limits, necessitating considerable investment in auxiliary
infrastructure (>1 billion USD) to maintain expected levels of service. Moreover, trade-offs
between human needs and ecological requirements are becoming more difficult and limited.
Although the general practice of climate adaptation is still a comparatively young field in boththeory and application, the assessment of climate risk for water-intensive projects has become
widespread and normalised. Accordingly, the Technical and Industry Working Groups considered

Version 3.3 | August 2022

25

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

that climate resilience as well as climate mitigation must be a fundamental component of theWater Infrastructure Criteria under the Climate Bond Standard.
This decision reflects an emergent body of practice among water managers and professionals
that will only become more widely understood and accepted as the climate adaptation spherebecomes more accurately defined and evaluated through new measuring and assessment
frameworks.
As a result of these boundary conditions, the Criteria are intended to screen for water
infrastructure related assets and activities that:a. Support climate mitigation (i.e., reduce the rate of climate change);b. Will be insulated from and robust to realised and credible future climate impacts and will
not cause worsening environmental footprints as climate conditions continue to evolve.
Like other sector-specific Criteria under the Climate Bonds Standard, the Water Infrastructure
Criteria do not attempt to address all environmental, social and governance aspects relating towater infrastructure. They can be supplemented by other relevant standards that cover areas
such as stakeholder engagement, social or human rights as desired. (see Appendix 4 for details).

4.3.

How to address climate mitigation in the Criteria?

Both working groups found that climate mitigation (reducing the rate of climate change by lowering
GHG emissions into the atmosphere) is an important and relatively straightforward function for
most water infrastructure assets. The exception is for desalination assets which is discussed ingreater detail in section 4.8.
The Criteria ask for a reduction in net GHG emissions or (at a minimum) a neutral impact in thecase of investments intended primarily to buffer climate impacts - in an effort to minimise the harmof future contributions of greenhouse gases to the atmosphere. Following the 2015 Paris Accord
and the increasingly widespread recognition that reducing greenhouse gases emissions must be
met through more sectors and economic activities over time, these low-carbon standards andmethodologies can be expected to become more stringent in coming years. As such, the role ofclimate mitigation in the Criteria should be expected to increase over time, especially for grey
infrastructure.
In terms of how to estimate GHG emissions impacts in grey water infrastructure, the Criteria
advise utilising established standards and evaluation methodologies for carbon accounting in thewater sector. For example, the UNFCCC Clean Development Mechanism (CDM), Voluntary
Carbon Standard (VCS), and the American Carbon Registry (ACR).
Evaluating the climate mitigation potential of nature-based-solutions is more complicated. Several
organisations, such as Conservation International, the Ramsar Convention, IUCN, and Wetlands
International, have been attempting to describe a practical mechanism for accounting for themassive quantities of carbon - sometimes called blue carbon - that can be stored in near-coastal

Version 3.3 | August 2022

26

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

regions such as estuaries and in specific types of ecosystems, such as mangrove forests andseagrasses.36
Forests and soils have also received extensive attention at national and global policy levels fortheir role in sequestering and storing carbon, as well as their additional co-benefits (e.g. ecologicalrestoration). The UNFCCC Kyoto Protocol defined a funding mechanism to support climate
mitigation efforts for such terrestrial systems called REDD+. Efforts are now quickly emerging toinclude blue carbon into these assets.
There have also been efforts to explore the role of tropical peatlands, frozen tundra, andfreshwater wetlands more generally as carbon storage mechanisms. Given that theseecosystems could become the target of funding, they may well also be a candidate for future
green bonds. However, the science and assessment / monitoring methodologies are not yet readyfor application.

4.4.

How are climate mitigation and climate resilience balanced in the Criteria?

For longer-lived assets, the TWG suggested that the Water Infrastructure Criteria should also
confirm that the assets themselves and their climate mitigation and other environmental benefits
will be robust to future climate impacts through the evaluation of a climate vulnerability or risk
assessment as well as have any resulting adaptation plan to address identified climate
vulnerabilities. This is explained further in Section 4.5 below.
In reference to longer-lived, the TWG focused on the climate risks associated with water-related
assets with an intended operational lifetime longer than 20 years — a timeframe now in use with
the World Bank and other major sustainable development finance institutions. 37

4.5.

How to address climate adaptation & resilience in the Criteria?

4.5.1. How is climate resilience defined and addressed in the Criteria?
During the consultation process, the TWG quickly expressed that any Criteria should incorporate
climate resilience - the ability for the asset and its intended climate and environmental benefits
and services to endure in face of ongoing climate shifts.
Globally, the mechanism to assess climate risk and resilience is referred to as a climate
vulnerability assessment or more simply a vulnerability assessment. Assessing climate
vulnerability has become standard for almost all long-lived investments, though great variations
exist in how those assessments are structured. Nonetheless, all vulnerability assessments
essentially look at the climate related risks for a nation, region, project, asset or activity and define
the level of concern or acceptable threat tolerance. Vulnerability assessments are a diagnostic
tool. In most cases, they are integrated with the design and planning stages of the project cycle.
36

https://www.nature.com/articles/d41586-018-00018-4
For example, see Ray, P., and C. Brown, 2015, Confronting Climate Uncertainty in Water Resources Management.
Washington, DC: World Bank Group.
37

Version 3.3 | August 2022

27

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

They may also be included with other tools, such as environmental impact assessments or
strategic environment assessments.
A great deal of variation between assessment methodologies exists, but the TWG does not feelthat a consensus exists for recommending a single approach or tool for all contexts, asset classes,
and types of institutions.
The TWG believes that requiring some form of climate risk diagnostic assessment is fair andappropriate as it has become mainstream for the majority of water investments. The Water
Scorecard detailed in the Criteria reflects what the TWG and IWG believe to be reasonable,
widespread, and meaningful aspects of vulnerability assessments, as well as to ensure that any
necessary adaptation planning is explicitly linked to identified risks. These topics are explored in
more detail below.
Once climate risks have been identified, then a secondary analysis is normally used to determine
the most effective climate adaptation and resilience response to these risks. Most often referred
to as an adaptation plan, these recommendations are the “response” to any risks diagnosed
through the vulnerability assessment. Often, the adaptation plan appears as a final section in avulnerability assessment document or integrated within sections in a vulnerability assessmentthat address specific climate risks. If climate risks are not seen as important in the vulnerability
assessment, no adaptation plan is necessary.
While vulnerability assessments and adaptation plans have become normalised within technicalmembers of the water community such as engineering, science, economics, and legalgovernance specialities, the reporting of these processes to financing authorities and to investors
has not. Therefore, the core emphasis on reporting resilience is a distinguishing feature of these
Criteria. Indeed, investors are becoming rapidly aware of the need to make real or potential
climate risks explicit for a wide variety of asset classes, and the Water Infrastructure Criteria
represent a profound shift in how these risks and efforts to reduce or eliminate those risks should
be assessed and communicated more broadly.

4.5.2. Using a process-based approach to assess climate vulnerability
How should climate risk, vulnerability and adaptation interventions be defined in a way that canbe reported to investors? The TWG spent considerable time on this issue.
No single standardised definition for climate vulnerability, risk, or hazard (much less adaptation
or resilience) was found. Resilience is often subjective, a negotiated measure or quality, reflecting
local and regional priorities and choices among often complex trade-offs. For example, resilience
for a water utility in Bangladesh is likely to look quite different to resilience for a water utility in the
Netherlands, even one facing similar types of climate risks.
Indeed, the TWG noted that climate risk assessment is in a period of rapid evolution anddevelopment, and a set of impact or output based criteria that follows a single approach (even a

Version 3.3 | August 2022

28

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

majority use approach, if one exists) would likely become dated quickly and potentially reduce thelikelihood of issuers using the Criteria. Instead, the TWG suggested that we follow a processbased approach, a choice that was validated by the IWG.
Such a process-based approach considers the breadth and scope of the vulnerability assessment
as well as the level of detail that is pursued. Implicit in these Criteria is the assumption thatvulnerability comes from both known, predictable threats as well as uncertain, difficult to evaluatethreats. The Criteria thus evaluate the depth of the vulnerability assessment rather than thespecific outcomes.

4.5.3. What resilience attributes were deemed most necessary to address in theseassessments?
The Water Infrastructure Criteria focus on the resilience of both the intended/designed servicesof the asset (e.g. water storage) and the relationship between the asset and its surrounding
ecosystems. More generally, the resilience attributes the TWG identified as most necessary forwater infrastructure assets and activities are “robustness” (the ability to span a variety of credible
climate futures) and “flexibility” (the ability to alter operations and modify design as the future
unfolds). These attributes are reflected explicitly through the assessment of criteria for water
governance and allocation patterns (whether the operations of the asset are flexible in the face ofshifting conditions) as well as the explicit consideration of the uncertainty and credibility
associated with future climate conditions as reflected in the assessment of technical ecohydrological variables (whether the asset and its operations are robust and capable ofencompassing a wide variety of potential future scenarios).

4.5.4. How might these qualities best be evaluated?
While climate mitigation contributions are relatively straightforward to evaluate, even quantify,
developing a clear means of evaluating the climate adaptation and resilience of assets andactivities was an early challenge in the development of the Criteria.
To achieve these goals, the TWG created a checklist to assess how the issuer’s vulnerability
assessment and adaptation plan (if required) explore risks associated with both the asset itself
and its environmental footprint - how the asset interacts with ecosystems even if climate shifts
alter the function of the investment and/or the ecosystem.
The IWG in particular insisted that a checklist should be easy to score and transparent in termsof the content used to adjudicate each criterion. The TWG was interested in a thorough coverageof resilience (as defined above) that was applicable to a wide class of assets. Ideally, theresilience criteria would also provide a kind of implicit decision support guidance for issuers,
encouraging them to define resilience broadly and to implement comprehensively.

Version 3.3 | August 2022

29

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

The checklist is divided into five main sections with a number of subdivisions. The main sections
include vulnerability assessment criteria that apply to all issuers (Allocation, Governance, Ecohydrological qualities).
The allocation section is intended to evaluate how water resources are divided among users andhow resource mechanisms may either facilitate or reduce the ability of the issuer to adapt theasset as conditions change. The governance section explores how real or potential water conflicts
may be avoided, reduced in scope, or adjusted and renegotiated. In most developed countries,
governance and allocations systems are typically expressed through strong regulatory, legal, andinstitutional frameworks, and assets given such a context will score well.
The Criteria are written so as to be relevant to a global setting, appropriate for both developed
and developing economies. Many of the items are derived from the OECD Water Governanceguidelines. The technical section on eco-hydrological qualities explores in some depth how adesign and/or operations was assessed for climate risks, including the comprehensiveness of
ecological, hydrological, and climate qualities.
In addition, a fourth section includes additional vulnerability assessment criteria that apply
specifically to green and hybrid assets only - these represent the major difference between
phases 1 and 2 in the development of the Water Infrastructure Criteria. A fifth section includes
additional assessment criteria that apply specifically to desalination plants. These represent the
major difference between phases 2 and 3, along with mitigation requirements for desalination
plants. Adaptation plan assessment criteria apply only to those assets where the vulnerability
assessment has identified specific climate impacts that must be addressed.
The criteria in each section were developed and elaborated recursively with both the TWG and
IWG. The criteria are unweighted and phrased as present/absent or pass/fail, though somecriteria may not apply to specific types of investments. For both phases of the Water Infrastructure
Criteria development, the elaboration and phrasing of each line occupied the majority of thedevelopment time and attention. The initial Criteria have held up well since the completion of
Phase 1, but both working groups acknowledged that they may need to be adjusted or revisedover time in order to remain relevant and useful.
There are a few “special” criteria, such as the requirement that a vulnerability assessment be
prepared and available for investors, the presence of an adaptation plan (if required) that is alsoavailable for investors to peruse, and the use of two qualifying assumptions for the use of the
Nature Based Solutions (NBS) criteria (described in more detail below). There is no need of avery detailed or lengthy adaptation plan - often they are quite brief and simple. The adaptation
plan is intended to evaluate how the issuer plans to respond to risks that have been identified in
the vulnerability assessment, which is often more detailed and technical than the adaptation plan.
The issuer must score a minimum of a 60 percent pass for all sections of the checklist. The
working groups suggested that this threshold would be reasonable for the launch of the Water
Infrastructure Criteria, with the recognition that the pass rate may rise or lower over time. Given

Version 3.3 | August 2022

30

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

broader trends among investors and infrastructure developers, it may be a safe assumption thatthe pass threshold will remain steady or increase in the future. Note that the 60 percent threshold
will be revisited one year after the release of the Water Infrastructure Criteria and after green
bonds being issued from at least 3 different issuers certified for both built and green/hybrid water
infrastructure under the Criteria.
For the process of scoring, the issuer should prepare a document that makes available supporting
information for the adjudication of the criteria. Guidance for the preparation of such a document
is available here, which is intended to promote both transparency and clarity for investors.

4.5.5. What are the boundaries of the assessment?
Many specific elements of the Water Infrastructure Criteria address a tension around scale. Whilemost assets are conceived at a localised project scale, the TWG found that much evidence aroundresilience for water issues - dating back to the nineteenth century - suggest that basin or
watershed scales are important for meaningful action and management. That is, resilience at one
locality is often in a complex relationship with resilience of upstream and downstream entities.
This larger hydrological relationship is explored in many criteria. As a result, an issuance with avulnerability assessment that demonstrates an awareness of basin and sub basin relationships,
including allocation and governance qualities, will score much higher. Wider boundaries mean abetter score. Similar patterns exist for groundwater and aquifer management. By the same token,
an asset that is conceived only as a local asset is a riskier investment simply from ignoring
upstream/downstream relationships.

4.6.

How are phase 2 Criteria relating to hybrid and green water infrastructure assets
incorporated alongside phase 1 Criteria for built water infrastructure?

The general approach developed during Phase 1, focusing on built water infrastructure, waslargely maintained in Phase 2, which addressed the special issues relating to NBS.
This continuity between phases was not an accident. During Phase 1, we constantly confronted
questions around hybrid and green infrastructure, and while we knew that some of thesequestions must be deferred, we also knew that a strong foundation was critical to ensure theCriteria would remain relevant across a wide range of assets, asset classes, sectors, andsituations.
However, beginning in 2016 during Phase 2, the TWG identified some issues specific to hybrid
and green infrastructure that needed more focused treatment and a higher standard of credibility
for both issuers and investors, most notably:•

Addressing the heightened difficulty of predicting future ecological and hydrologicalresponses to climate impacts,

Version 3.3 | August 2022

31

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper•

Prioritising the incorporation of existing ecosystems and ecological processes, followedby the restoration of existing ecosystems, and then the creation of “new” ecosystems. In
essence, we suggest working with existing and intact ecosystems or enhancing thoseecosystems rather that constructing or engineering new ecosystems and ecologicalprocesses, although the latter is the primary choice at so-called brownfield sites.

These elements help ensure that the certification of nature-based-solution (NBS) assets will not
result in greenwashing or the endorsement of low credibility, low resilience, or high-risk assets.
Conceptually, the TWG was very concerned about the basis for green and hybrid infrastructure.
There were concerns that some investments might degrade existing ecosystems or that funded
assets could lack a clear water services benefit for human communities. Since ecosystems areoften very sensitive to climate shifts, many of the criteria emphasise ecological processes andfunctions, which are less dependent on specific set of species (which might alter or shift withongoing climate change).
The criteria also distinguish between natural features (which are existing ecological processes
and ecosystems) and nature-based solutions (which are somewhat broader, and include
designed and reconstructed and ecological analogue approaches, such as “new" wetlands onbrownfield sites). As a result, the issuer must prioritise the use of existing and restored systems
and processes over modified or new ecosystems. These qualifying aspects are derived from welldeveloped concepts and definitions on the use of ecosystems as infrastructure, which were
elaborated recently by IUCN38 and the US Army Corps of Engineers.39
Assuming this inherent prioritisation, the five NBS sub-sections of the checklist explore theissuer’s depth and quality of knowledge about the site; its ecosystems and relevant species; thelarger spatial context beyond the project site; and monitoring and management capacities. Thesesections were proposed through the TWG as elements necessary to ensure a credible andsustainable green or hybrid asset. As with other criteria, these criteria should be scored andtransparent for potential investors.

4.7.

Dealing with complexity and uncertainty

Water management systems, especially water infrastructure, can have relatively long operating
lifespans - usually decades, sometimes centuries or more. These long life cycles have important
implications for how we conceive of sustainable and climate resilient infrastructure.
This longevity presents significant challenges to defining what climate resilience should look like.
These challenges are especially large given the sensitivity of the water cycle to ongoing climate
38

Cohen-Shacham, E., Walters, G., Janzen, C. and Maginnis, S. (eds.) (2016). Nature-based Solutions to address
global societal challenges. Gland, Switzerland: IUCN.
39
Bridges, T.S., K. A. Burks-Copes, M. E. Bates, Z. Collier, C. J. Fischenich, C. D. Piercy, E. J. Russo, D. J. Shafer,
B. C. Suedel, J. Z. Gailani, J. D. Rosati, T. V. Wamsley, P. W. Wagner, L. D. Leuck, E. A. Vuxton. 2015. Use of
Natural and Nature-Based Features (NNBF) for Coastal Resilience. ERDC SR-15-1. Washington, DC: US Army
Corps of Engineers and U.S. Army Engineering Research and Development Center.

Version 3.3 | August 2022

32

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paperchange and the difficulties in how we can determine future climate impacts with accuracy,
precision, and confidence. The water cycle is very sensitive to minor climate shifts, and trends in
how the precipitation, seasonality, intensity, and evolving flows are notoriously difficult to predict
with confidence, especially for periods of interest further away in time. This makes designing,
maintaining and operating water infrastructure challenging.
While the science of climate change is relatively new, the practice of ensuring that water
management practices are resilient is even newer. In the words of a recent technical publication:
Today, water resources managers must account for much more complexity in theirtechnical decisions. Many aspects of that complexity have rippling, interacting waves of
uncertainty: emerging socio-economic circumstances, demographic and urbanisation
trends, and eco-hydrological conditions. Globalisation, population increases, andeconomic cycling and transformation also stress water resources systems with risks thatare hard to estimate and balance. Even the science of the water cycle and our vision of“sustainable use” of water have altered in profound ways since the [the modern era] began
in 1955; many of the most important management insights from eco-hydrological science
are less than 20 years old.40
As a result, professionals in the water field have been actively developing methodologies todetermine the best means of designing and operating water infrastructure that will function safely,
profitably, and sustainably in a highly uncertain future.
While the techniques to assess and reduce water and climate change risks are evolving quickly,
there is no clear consensus about best practices in the engineering, water management, climate
science, or finance communities. Defining Water Infrastructure Criteria therefore faces the added
challenge of knowing that current insights are likely to evolve significantly and rapidly in the near
future, even as finance mechanisms, financial flows, and policy priorities direct increasing
attention to both climate mitigation and climate adaptation.
For this reason, the Technical and Industry Working Groups view these Criteria as a starting point,
to which additions and revisions will be needed over time including potentially broadening theclimate focus. The Water Infrastructure Criteria will be reviewed at least annually in the first three
years of its use.

4.8.

Incorporating Desalination Criteria into the Water Criteria

The following sections describe the key issues that the Desalination TWG (separate to the Water
TWG) discussed and addressed in developing Criteria for desalination plants. These additional
criteria were developed following suggestions that the original mitigation component of the Water

40

Mendoza, G., J.H. Matthews, A. Jeuken (eds). 2018. Collaborative Risk Informed Decision Analysis (CRIDA):
Water Resources Planning & Design for an Uncertain Future. ICIWaRM Press: Alexandria, Virginia, USA.

Version 3.3 | August 2022

33

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Criteria was unsuitable for desalination. The resulting Desalination Criteria were approved by theWater TWG and the Climate Bonds Standards Board.

4.8.1. Scope of desalination criteria
A simplified view of the scope of desalination assets and activities might be limited to one type of
asset: a desalination plant. However, distinctions can be made between plants based on: (i) size;(ii) type of water being desalinated (e.g. seawater or brackish water); or (iii) location (e.g. small
island, inland or coastal plants).
Further distinctions can be made between plants based on the water quality (i.e. feed and product),site conditions (e.g. plant elevation) and location (e.g. conveyance requirements and topography).
There is therefore considerable variation across desalination plants which affects their ability todecarbonise and operate sustainably. The following sections (4.8.2 – 4.8.4) discuss the possible
distinctions that were discussed by the TWG and the decisions ultimately taken. The TWG
decided that it was not necessary to distinguish between seawater desalination and brackish
water desalination plants for mitigation or A&R.
The criteria for desalination plants are technology agnostic. That is, they do not distinguishbetween thermal and membrane technologies. However, because the underlying criterion for all
plants is to be powered using low carbon energy, it is expected that this will effectively restrictcertifications of thermal desalination plants which generally use fossil fuels.

4.8.2. Distinctions based on plant size
Plants differing in size will experience certain benefits and disadvantages. Larger plants will haveaccess to economies of scale in the water they produce. This thus improves their efficiency andeconomic viability. At the same time, they will have more onerous management processes for
greater quantities of brine (for example). Moreover, it may be more difficult for them to source ahigher proportion of their energy from renewable sources. This is especially the case when
considering limits to land availability and a limited supply of renewable power in certain regions.
Plant size can be taken to mean both the area of the plant and also the production capacity (m 3of water / day). Larger plants that produce greater quantities of water per day (up to one million
m3 water / day) may see high energy efficiencies (low kWh / m 3 values). However, their overall
energy demands may still be high. This is taken into account in these criteria. See Section 4.8.7
for more detail.
The TWG decided to not make any distinction in criteria for plants differing in size. Large andmedium-sized plants (ranging in capacity from 1000m 3 up to 1,000,000m3 of water produced perday) can feasibly integrate high levels of clean energy powering their processes. The lower energy
and land requirements of smaller plants (with capacities at and below 100m 3 per day) make themeven more suitable for low carbon energy sources, such as solar or wind power. This can even

Version 3.3 | August 2022

34

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

be a directly owned energy source on site, without the need to take energy from the grid or
establish a Private Purchase Agreement (PPA) for renewable power.
The Criteria require issuers to meet one mitigation threshold. This threshold reflects low carbon
energy powering a desalination plant. Even with variations in plant size, this threshold isambitious yet should be attainable even for large plants.

4.8.3. Distinctions based on feedwater typeDesalData, a comprehensive global database maintained by Global Water Intelligence (GWI),
categories feedwater according to ppm Total Dissolved Solids (TDS). Seawater has the highest
ppm TDS, followed by brackish water. Other categories (not in order of ppm TDS) are river water,
pure water, brine and waste water. For simplicity, these criteria cover the desalination of seawaterand brackish water, the two most common feedwater types, which accounts for 82% ofdesalinated water production globally41.
There are considerable differences in the energy requirements and water destination ofdesalination plants depending on the feedwater they desalinate (seawater and brackish water).
These differences may be partially due to the end use of the desalinated water, as desalinatedbrackish water is generally used more for industrial purposes than seawater42, which generally
serves drinking water purposes. Drinking water generally requires a higher water quality thanwater for agricultural, although there is considerable variation.
Seawater can be defined as water drawn from the sea. Brackish water is defined as water saltierthan fresh water, but not as salty as seawater. It may come from estuaries or aquifers, for example.
Certain human activities can produce brackish water, in particular certain civil engineering
projects such as dikes and the flooding of coastal marshland 43.
The difference in energy requirements between seawater reverse osmosis (SWRO) and brackish
water reverse osmosis (BWRO) desalination plants is largely due to the thermodynamic
conditions of desalinating the feedwater. The lower starting salinity of brackish water means lessosmotic pressure is needed to push the feedwater through the membrane and desalinate it. Thismeans brackish water desalination requires considerably less energy than seawater desalination.
This is reflected in the range of energy efficiencies seen across these categories (0.5 – 3 kWh/m3
for BWRO and 3 – 6 kWh/m3 for SWRO)44.
In spite of these distinguishing characteristics, the TWG decided that there was no need to makedistinctions between seawater and brackish water desalination plants. This is because these

41

Jones et al. (2019)https://www.waterworld.com/international/desalination/article/16203131/membranes-now-dominate-95-percent-of-desalinationmarket
43
https://www.eea.europa.eu/archived/archived-content-water-topic/wise-help-centre/glossary-definitions/brackish-water
44
Roy, S. and Ragunath, S., 2018. Emerging membrane technologies for water and energy sustainability: Future prospects,
constraints and challenges. Energies, 11(11), p.2997.
42

Version 3.3 | August 2022

35

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Criteria do not set thresholds based on plant energy usage, but only on low carbon energy. As
such, plants using either feedwater type have the same ability to adopt low carbon energy.
Seawater and brackish water desalination plants do not only differ in their energy usage andemissions aspects. They also face different challenges in two key issues identified by the TWG
for A&R. Brine disposal (and to an extent moving towards zero liquid discharge) involves different
strategies and processes for a seawater desalination plant than for a brackish water one. The
same goes for feedwater intakes. These issues and distinctions between categories, along withpossible solutions, is discussed in more detail in sections 4.8.9 and 4.8.10. Despite this, the A&R
component of the Water Criteria provides flexibility for the issuer. It allows them to use thesolutions that best suits the conditions of the plant, while still requiring a robust plan or strategy
in place to deal with both issues.

4.8.4. Other variation in desalination plants
The TWG also discussed other important distinctions between desalination plants based on avariety of factors. This included site conditions, such as plant elevation, or location, for example
conveyance requirements and salinity of the feedwater (the Mediterranean is less saline than the
Arabian gulf). Again, these factors affect the energy requirements, emissions, and a plant’s
approaches to dealing with intakes and brine discharge.
There were several reasons why it was unsuitable to distinguish based on these other factors.
Firstly, there is similar reasoning as for the previous two sections. With the mitigation thresholdbeing simply set on the carbon intensity of the energy source, there is no need for thresholds todiffer between plants. Secondly, the availability of data in academic or industry literature onenergy efficiency or CO2 intensity based on these factors is poor.
Thirdly, the criteria aim for simplicity while still capturing the most important variation. Making
distinctions on thresholds and requirements based on any variation seen across plants could
result in overly complicated criteria. Despite this trade-off, a balance must be struck between thecriteria’s comprehensiveness and their usability for issuers.

4.8.5. Determining a metric for mitigation thresholds
A core principle of Climate Bonds Standard sector criteria is to, where possible, provide issuerswith clear quantitative requirements that they must meet for eligibility. Through not prescribing
specific technologies or practices for the issuer to implement, this allows the issuer to meet thethreshold however is best for them.
The TWG explored first the potential for setting emissions intensity thresholds as the mitigation
component for desalination plants. For example, this may have taken the form of a threshold for
gCO2 /m3 of fresh water produced. This threshold would be aligned with IPCC guidelines of 1.5degree Celsius warming scenarios. Issuers could then fall below this emissions threshold either

Version 3.3 | August 2022

36

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

by having a low energy usage (or high efficiency), by having a large proportion of renewable
power, or a combination of both. However, there is limited analysis or data which provides
trajectories for desalination to align with the Paris Agreement.
What few studies do exist to analyse desalination emissions do not suitably inform appropriate
thresholds for this process. An IEA study mentioned previously examined a Sustainable
Development Scenario (SDS) for desalination’s energy mix in the Middle East which aligns with
the Paris Agreement. See section 2.3 (Desalination today and in the future) and Table 1 for further
discussion. This study looks only at percentages of the energy sources powering desalination
which incorporates existing plants and the geographical scope creates further limitations. It
furthermore creates little opportunity for plants with a lower renewable energy share, but withhigher efficiencies that are thus reducing their emissions. Lienhard et al. (2016) 45 provides
indicative ranges of emissions intensities seen in desalination (see table 2). However, a higher
level of data granularity is needed to determine what point in these ranges is suitably green, alongwith the assumptions that support the data. The study mentions the ranges depend on the fossil
fuel source, without mention of plants powered by renewable energy.
Where a precedent has been set which helped inform TWG decisions was in the EU taxonomy
on sustainable finance (hereafter referred to as the EU taxonomy). While desalination is not an
economic activity for which criteria and definitions have been set, other industrial processes (suchas the manufacture of aluminium) are. These sectors may face similar challenges in analysis andso this approach was chosen as the most appropriate route for meeting a mitigation component.
The issuer must demonstrate that their average carbon intensity of the energy used to power theirdesalination plant falls below a threshold of gCO 2 / kWh of electricity. This gives issuers a single
clear threshold they must meet in order to meet the mitigation threshold. This means that any
certified plant will undoubtedly be low carbon, despite its energy use, plant size, feedwater typeor location.
A desalination plant may not meet this threshold and yet have a very high energy efficiency (orlow energy usage). This might mean that, per m3 of water produced, it may have similar levels ofemissions to a plant that is less efficient yet does meet the threshold. It is acknowledged, therefore,that these criteria do not fully allow for issuers reducing their emissions across the whole spectrumof possible measures and practices. However, the TWG discussed at length the issue thatallowing for efficiency to be part of a threshold. Under such a threshold, a plant could be certified
that uses less energy for its size. However, it may still have a high energy demand, especially if
a large plant. Combined with the use of high carbon energy, such a plant could produce large
amounts of GHG. See section 4.8.7 for further rationale on this.

45

Ibid.

Version 3.3 | August 2022

37

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

4.8.6. Determining a threshold for mitigation thresholds
The carbon intensity threshold for the energy used by a plant is based off the same metric usedby the EU taxonomy. This reflects low carbon energy and gives very little room for fossil fuelenergy46. It reflects the necessary average value of power generation emissions between 2020
and 2050 to meet the net-zero by 2050 goal. It is based on knowing what projected electricity
sector emissions are against projected electricity demand. Therefore, in the EU, the threshold of
100gCO2/kWh tells us what new power plants should be emitting at most in order for the EU tomeet a target of net zero by 2050. This ensures that the thresholds in these criteria arescientifically robust and align with best practice in the market.

It is acknowledged that the threshold of 100gCO2/kWh reflects only EU projected emissions andelectricity demand. CBI aims to set thresholds that fully reflect global data and variability. However,in the absence of regional granularity, the 100gCO 2/kWh threshold will be applied as default.
Future iterations of the Criteria will be open to other work that has carried out similar
methodologies for other regions. For now, however, this methodology is the best existing
framework for determining Paris-aligned energy. Moreover, it broadly reflects green energy
globally by virtue of the energy types it excludes, for example unabated gas generation.
This threshold is to be met for each year of the bond lifetime.

46

More information and rationale for this threshold can be found in the EU taxonomy technical annex:
https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/200309-sustainable-finance-tegfinal-report-taxonomy-annexes_en.pdf

Version 3.3 | August 2022

38

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

4.8.7. Potential emissions in energy efficient plants
The TWG discussed whether the mitigation component could be composed of two possible routes
to compliance for issuers. One of low carbon energy and the other of high energy efficiency (lowenergy usage). However, the group was mindful that high energy efficiency is not a guaranteethat a plant’s emissions are low. Large scale desalination plants still utilise considerable amountsof energy and even the most energy efficient plants may have high levels of scope 2 emissions.
The most extreme example that the TWG discussed might be a large plant located in a country
where grid power is overwhelmingly comprised of fossil fuels, particularly coal. A plant may behighly energy efficient, yet its scope 2 emissions are still higher due to its energy mix.
An overarching principle across all Climate Bonds Standard sector criteria is that they should be
ambitious in requiring issuers to decarbonise within their own power. While efficiency
improvements would be an obvious way for plants to improve their own practices, this would notsolve the issue discussed in the previous paragraph. Moreover, plants are continuously increasing
their efficiencies for reasons of costs. Requiring best practice energy efficiency would thus merelyreflect the most modern plants. It would not incentivise plants to adopt clean energy as theirenergy source – the crucial route to reducing their carbon footprint. Therefore, such an efficiency
threshold would automatically favour new, larger plants that may be efficient, but still haveextremely high emissions stemming from high fossil fuel use.
On the other hand, if a plant meets the low carbon energy threshold chosen, this demonstrates
they are leading players in the sector that are aiming to ambitiously improve their practices andreduce their carbon footprint. A plant’s energy usage matters less when the energy is alreadydefined as low carbon. Renewable energy, and especially solar, is cheaper than coal and gas inmost major countries47 which can create extra incentive for plants. These significant opportunities
for reducing a plant’s costs meant the TWG was comfortable with setting a low carbon energy
threshold as the sole mitigation requirement.

4.8.8. Desalination and grid stability
The TWG discussed the effect that desalination plants (particularly large-scale) might have on anelectrical grid systems stability. The large energy requirement of desalination plants means they
have greater effect on electricity demand in a grid. In particular, the rotation speed of high-power
motors in Reverse Osmosis systems will influence the power grid. This is because their operation
increases the Total Harmonic Distortion (THD) experienced by a grid as a result. However, in alarge part of the world there is a maximum THD requirement, meaning that in those countries
there is no adverse effect of RO on the grid. In other countries, the electricity tariff increases with
THD. In essence, the accuracy of power consumption measurement is decreasing and hence
there is a higher tariff. Whilst this motivates the user to solve the THD problem using active filter,
it does not completely ban them. None the less, the TWG did not consider grid destabilisation to
be a considerable concern.

47

https://webstore.iea.org/download/summary/4153?fileName=1.English-Summary-WEO2020.pdf

Version 3.3 | August 2022

39

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Grid stability in light of increasing renewable energy integration was also discussed. The Criteria
as they stand require plants to source a high amount of their energy from renewable sources.
This can have destabilising effects on a grid. Renewable energy sources do not have the samestabilising characteristics as fossil fuel sources. As such, grid inertia is harder to ensure. However,concerns regarding instability and renewables diminishes continuously. Improved storage andgrid control systems means renewable energy does not result in less stable electricity supply andcan even result in greater stability. Additionally, renewables provide benefits to the grid in the formof flexibility.
In all, the TWG determined that grid instability was not a considerable issue to be addressed inthese Criteria. In fact, requiring high amounts of renewable energy by large energy users such as
desalination plants can positively disrupt grid systems by sending strong signals to grid markets
for increased renewable energy penetration.

4.8.9. Brine disposal
Once seawater or brackish water has been desalinated, the remaining by-product is highly saline
brine. The concentration of the remaining brine depends on the efficiency of the desalination plantin converting a high proportion of the feedwater to fresh water. The proportion of intake water thatis converted into fresh water is known as the recovery ratio (RR), which is highly dependent upon
the feedwater type and desalination technology. The higher the RR (between 0 and 1), the more
freshwater has been produced from the intake, leaving lower volumes of higher concentrated. RR
is partially dependent on feedwater type as well as the type of technology used in the desalination
plant (for example, RO, MSF or MED).
The highly saline brine discharge requires careful management to avoid potential adverse impacts
on surrounding ecosystem48. For example, in seawater desalination brine is often disposed of into
the ocean. There is enough literature exploring the effects of brine discharge on aquatic
environments along with substantial industry regulations that led to the TWG to designate brine
disposal an important issue to capture. This is addressed in additional A&R requirements thathave been added to the existing checklist in the Water Criteria.
In addition to sustainability goals, desalination plants are concerned with better management ofbrine in order to reduce their own disposal costs, including moving towards zero-liquid discharge.
There are also unique uses for brine that can present economic opportunities for desalination
plants49, but such benefits are less widespread today.
The type of feedwater is a factor that creates different challenges for the disposal of brine.
Generally, the more saline the feedwater, the lower the RR. Seawater desalination thus createsconsiderably greater volumes of brine that must be disposed of. At the same time, being coastally
48
49

Roberts et al. (2010). Impacts of desalination plant discharges on the marine environment: A critical review of published studies
Sanchez et al. (2015). Uses of the reject brine from inland desalination for fish farming, Spirulina cultivation, and irrigation of
forage shrub and crops

Version 3.3 | August 2022

40

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

located may mean they have more feasible and cheaper options to dispose of brine into the ocean
without adverse effects on the surrounding environment. Despite this, the TWG agreed that there
was no need to distinguish between plants based on feedwater as has been done for the
mitigation component.
The A&R checklist in the Water Criteria is laid out as such that the issuer must provide evidenceof meeting the requirements for each question relevant to them. However, they do not require
specific measures or practices in place in order to comply. Instead, “evidence” of action, analysis
or research should be sought to show that the issue is being broadly addressed. This continues
to be the case, therefore, for brine disposal. The TWG agreed that common and feasible
measures exist for desalination plants to deal with brine discharge. Diffusers were put forward as
an obvious way seawater desalination plants should be disposing of brine. Moreover, in many
countries or jurisdictions there are already considerably strict rules in place for plants to suitably
deal with brine.
This requirement is found in section five of the A&R checklist in the Water Criteria.

4.8.10. Feedwater intake
Feedwater intake was the second issue identified by the TWG as needing addressing in the A&R
component. Improving the quality of intake water substantially reduces a plant’s costs, particularly
through reducing the amount of membrane fouling. It also reduces the need for chemical usage
and reduces other environmental impacts on surrounding ecosystems 50 . These impacts fromopen-ocean intakes may include impingement and entrainment of marine biota, which can create
large permitting and construction costs51. Impacts may be similar for brackish water in estuarine
or other aquatic environments.
Similar to the issue of brine disposal, careful management of intake is in a plant’s economic
interest. As such, there are numerous options available to plants which minimise the negative
effects on feedwater intake on the aquatic environment. The TWG underlined subsurface intake
wells which draw from subsurface aquifers as one of the most effective options in this regard. Likefor brine disposal, the criteria again give the issuer flexibility in dealing with this issue. The
requirement rather is that they must demonstrate that they have measures in place rather thanbeing prescribed a specific piece of equipment or infrastructure.
In certain jurisdictions there are stringent regulations already in place which may make thisrequirement simple for issuers to meet. However, in places where this is not the case, the TWG
agreed that this requirement would ensure issuers were suitably dealing with intakes. These
measures may equally be different depending on whether the feedwater is brackish water orseawater.
50

Dehwah & Missimer (2016). Subsurface intake systems: Green choice for improving feed water quality at SWRO desalination
plants, Jeddah, Saudi Arabia
51
Missimer et al. (2013). Subsurface intakes for seawater reverse osmosis facilities: Capacity limitation, water quality improvement,
and economics

Version 3.3 | August 2022

41

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

4.8.11. Desalination with respect to other water management techniques
The TWG discussed the issues surrounding water management more generally which isdemonstrated by the Water Criteria. Desalination is one of many possible solutions that provides
potable water which, even if best practice, may be secondary to other management solutions interms of its carbon footprint and environmental credentials. For example, water conservation andre-use generally has a far lower carbon footprint than most desalination seen today 52. They also
carry fewer environmental impacts such as brine discharge or intake effects.
Desalination is usually considered as an option in locations where alternative options are notavailable53. This is principally down to cost, as both the construction and operation of desalination
plants is more expensive than the alternatives. Desalination energy requirements and therefore
costs become more comparable with more conventional water resource measures when theconventional water must be moved long distances to serve certain populations 54 . However,desalination is also becoming comparable with conventional supplies generally where the plant
capacity is large and thus costs are lower.
The TWG decided that exclusions should not be made based on the use of the water, unless incertain dedicated examples such as cooling water in fossil fuel power stations (see section 4.1.3).
A water or energy utility may be unable to control where the water is used by a municipality or
consumer, for example. Consumer- and supply-side measures are outside of scope of thesecriteria for similar reasons. Certain issuers developing a desalination plant may also not haveaccess to other options of water resources as it falls outside their competency, jurisdiction or
expertise. For example, a private energy utility building a desalination plant cannot instead decide
to implement a water reuse system in a municipality.
In all, there are numerous instances where issuers have little control over whether an alternative
option would be a more suitable water resource option. The TWG therefore considered themitigation and A&R requirements to be sufficient to ensure certified plants are climate-aligned. It
was decided therefore to not to add further requirements for issuers to have exhausted all otherreasonable water resource options prior to desalination.

4.8.12. Desalination driven by waste heat
The TWG discussed the prospect of including as eligible desalination plants that are powered bywaste heat from various industrial processes. Thermal energy has the potential to power
desalination through several ways. Most common are thermal desalination processes such as
MSF or MED which can be directly powered by thermal energy. RO can also be powered from52

Cornejo et al. (2014). Carbon footprint of water reuse and desalination: a review of greenhouse gas emissions and estimation
tools
53
Ibid. Gude & Fthenakis (2020).
54
Plappally and Lienhard (2012). Energy Requirements for Water Production

Version 3.3 | August 2022

42

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

thermal energy, although this affects efficiency. This is normally done so through the burning offossil fuels. Integrated Water and Power Plants (IWPP) are a common example of this where
desalination and power processes are closely coordinated to make the overall system more
efficient. However, the source of energy is still fossil fuel-based.
There is growing research exploring the opportunities in utilising waste heat from industrial
processes to power desalination55. Substantial amounts of energy are lost as a by-product of
inefficient industrial processes (up to 50%)56. Utilising this waste heat could not only improve theefficiency of the system itself, but it could replace fossil fuel power for a range of desalination
technologies. Equally, waste heat has applications arising from renewable power, such as CSP 57,
which can ensure 24/7 operation.
The TWG acknowledges the importance of waste heat as one of many options that can replace
directly powering desalination with fossil fuels. The emissions mitigation opportunity may also lie
indirectly in displacing energy use from a grid with a high proportion of fossil fuels.
However, it was decided to exclude from eligibility desalination plants utilising waste heat fromindustrial processes or fossil fuel power plants for the following reasons: a) such desalination
plants are directly linked to fossil fuel power which falls outside the scope of what may beconsidered ‘green’; b) it may be an suitable alternative, but there is little indication of what pointsuch systems should not be considered up to; c) such systems may risk locking in fossil fuelassets, although the TWG stressed that extent of such lock-in is uncertain; and d) if not purely‘green’, such assets may hold better promise for future work being carried out on transition
finance58. Additionally, without criteria for certain manufacturing industries such as cement or iron& steel, the TWG does not include such assets within scope.
Desalination plants utilising waste heat from renewable energy (such as CSP) are still eligible if
meeting the mitigation and A&R requirements.

4.8.13. Intermittency of renewable energy
One barrier frequently cited in desalination to complete integration of renewable energy into
powering plants is that of intermittency. The intermittent nature of renewable energy may result inperiods of low generation if there is low levels of sunlight or wind, with few ways of storing theenergy for later use. End-uses of desalinated water often necessitate a constant supply andtherefore constant production. However, the TWG were confident that this issue should notprevent a high proportion of renewable energy being the norm for plants. Technologies such as
Concentrated Solar Power or pumped hydropower are ways of storing renewable energy tooperate the plant constantly. More long-term, battery technology and green hydrogen may havedeveloped enough to provide an extra storage solution.
55

Shahzad et al. (2015). Future sustainable desalination using waste heat: kudos to thermodynamic synergy
Wooley et al. (2018). Industrial waste heat recovery: A systematic approach
57
Ibid. Shahzad et al. (2015)58
https://www.climatebonds.net/resources/reports/financing-credible-transitions-white-paper
56

Version 3.3 | August 2022

43

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Membrane fouling was also discussed as an issue that occurs when production rate might
decrease (for example due to intermittent renewable supply). However, the TWG maintained that
there are solutions and developing research that avoid such problems.

Version 3.3 | August 2022

44

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Appendix 1: Technical Working Group and Industry Working Group
members
Water Infrastructure Criteria development has been led by a consortium consisting of the
Climate Bonds Initiative, AGWA, Ceres, CDP and the World Resources Institute (WRI). To
develop the Water Infrastructure Criteria, focusing on engineered or built or engineered water
infrastructure, the consortium convened a Technical Working Group (TWG) and an Industry
Working Group (IWG), with representatives from investors, public utilities, water NGOs andinternational policy bodies from around the world.
Technical Working Group Members:
Lead: John Matthews, Alliance for Global Water Adaptation (AGWA)
Ania Grobicki,RAMSAR
Aparna Sridhar, The Nature Conservancy (TNC)
Ari Raivetz, Organica Water
Betsy Otto, World Resource Institute (WRI)
Benjamin Denjean, Beijing Forest University
Bill Stannard, American Water Works Association (AWWA)
Bob Zimmerman, Charles River Watershed Association
Casey Brown, University of Massachusetts, Hydrology
Cate Lamb, Water Program, CDP
Cedo Maksimovic, Urban Water Research Group, Imperial College London
Cees van de Guchte, Deltares
Christian Severin, Global Environment Faciilty (GEF)
Charles B Chesnutt, USACE
Christine Chan, Alliance for Global Water Adaptation (AGWA)
Cynthia Lane, American Water Works Association (AWWA)
Dan Christian, Tetra Tech
Dave Hole, Conservation International
Debbie Larson-Salvatore, USACE
Elena Lopez-Gunn, Complutense University of Madrid
Erica Brown, Association of Metropolitan Water Agencies (AMWA)
Guy Pegram, Pegasys, South Africa
James Dalton, IUCN
Janet Cushing, USGS
Jason Fairbairn, Arup
John Joyce, Stockholm International Water Institute (SIWI)
Jorge Gastelumendi, The Nature Conservancy (TNC)
Junguo Liu, IIASA, Chinese Academy of Sciences
Karen Yacos, Ceres
Larry Band, University of Virginia
Laurna Kaatz, Denver Water
LeRoy Poff, Colorado State University, Stream Ecology Lab
Lisa Hair, US EPA
Version 2 | March 201845

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Maija Bertule, UNEP-DHI
Manisha Singh, WiseLion LLC
Marco Follador, Way Carbon
Margot Hill Clarvis, Earth Security Group
Matt Ries, Water Environment Federation
Melinda Massey, DC Water
Michael McClain, UNESCO-IHE
Monika Freyman, Ceres
Musonda Mumba, UNEP
Nancy Saich, European Investment Bank (EIB)Peter Streit, California Organised Investor Network (COIN)
Rob Cadmus, RAMSAR
Rochi Khemka, 2030 Water Resources Group
Sebastian Hyzyk, European Investment Bank (EIB)
Sharlene Leurig, Sustainable Water Infrastructure Program, Ceres
Stefanie Lindenberg, European Investment Bank (EIB)
Tatiana Fedotova, WBCSD
Ted Grantham, University of California, Berkeley
Thomas Panella, Asia Development Bank
Todd Gartner, World Resources Institute (WRI)
Torgny Holmgren, Stockholm International Water Institute (SIWI)
Valerie Hickey, The World Bank
Will Sarni, Water Foundry
Xavier Leflaive, OECD
Industry Working Group members:
Adam Carpenter, American Water Works Association
Anais Blasco, WBCSD
Arturo Buenaventura Pouyfaucon, Abengoa Water
Bob Morgan, Beaver Water District
Cameron Ironside, International Hydropower Association
Chris Webb, HERRERA
Eric Schellekens, Arcadis
Gary Sharkey, PwC UK
Hannah Leckie, OECD
Jessica Robinson, Asria
Manisha Singh, Wiselion LLC
Martin Geiger, DEG
Matthew Kuzma, Organica Water
Mike Brown, San Francisco Public Utilities Commission
Monica Reid, Kestral Consulting
Nicole Hardiman, Illinois River Watershed PartnershipPaul Fleming, Seattle Public Utilities
Paul Wood, Water Fund LLC

Version 2 | March 201846

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Piet Klop, PGGM
Roman Gomez, IFC
Simon Petley

Appendix 2: Experts engaged in development of the Desalination Criteria
The addition of Criteria for Desalination to the Water Criteria has been led by a separate TWG
comprised of desalination technical experts. These experts similarly included representatives
from public utilities, water NGOs and international policy bodies from around the world.
Technical Working Group Members:
Paul Buijs, King Abdullah University of Science and Technology (KAUST), Water Desalination &Reuse Centre (WDRC)
Angelina Galiteva, President for NEOptions / Chair, California Independent System Operator(ISO)
Edward Jones, University of Utrecht
Heather Cooley, Pacific Institute
Molly Walton, Independent / formerly of the International Energy Agency (IEA)
Special thanks go also to Tom Pankratz, independent consultant and Global Water Intelligence,for valued input from an industry perspective.

Appendix 3: About the Water Infrastructure Criteria Consortium Members
About the Climate Bonds Initiative
The Climate Bonds Initiative is an investor-focused non-profit organisation working to mobilise
debt capital markets for climate change solutions. It works as an independent resource for thegreen 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.
It has established and manages the Climate Bonds Standard & Certification Scheme, the only
certification scheme globally for green bonds. In 2016, 10% of all green bonds issued aroundthe world were certified under the Climate Bond Standard. As part of the roll out of theStandard, the Climate Bonds Initiative convenes technical and industry experts to develop thesector specific eligibility Criteria (or ‘green definitions’) which form the backbone of the Climate
Bond Standard.
About Alliance for Global Water Adaptation
Founded in September 2010, the Alliance for Global Water Adaptation is a group of regionaland global development banks, government agencies and ministries, diverse non-governmentalorganizations (NGOs), and the private sector focused on managing water resources in asustainable way — even as climate change alters the global hydrological cycle. Water provides
Version 2 | March 201847

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

coherence to climate change adaptation and mitigation, integrating energy, water, foodproduction and agriculture, and ecosystems and the environment. AGWA is focused on how tohelp experts, decision makers, and institutions in the water community work more effectively.
About Ceres
Ceres is a non-profit organisation advocating for sustainability leadership. Ceres works tomobilise 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 Carbon Disclosure Project
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,
capitalise on opportunities and make investment decisions that drive action towards a moresustainable world.
About World Resources Institute
WRI is a global research organisation that spans more than 50 countries, with offices in
the United States, China, India, Brazil, Indonesia and more. Our more than 700 experts andstaff work closely with leaders to turn big ideas into action to sustain our natural resources—thefoundation of economic opportunity and human well-being. Our work focuses on six criticalissues at the intersection of environment and development: climate, energy, food, forests, water,
and cities and transport.

Appendix 3: Existing green assessment frameworks and processes forwater infrastructure assets and projects
For water management, relevant frameworks for the assessment of water climate bonds are notcommon or widespread. A number of relevant resources exist that have been reviewed todetermine what might be leveraged in a set of water related criteria for bonds. These are briefly
described here.
Green Bond Principles
The Green Bond Principles (GBP) are voluntary process guidelines that recommend
transparency and disclosure and promote integrity in the development of the green bond market
by clarifying the approach for issuance of a green bond.
The GBP provide high level categories for eligible Green Projects in recognition of the diversityof current views and of the ongoing development in understanding of environmental issues andconsequences. Specifically, the category of sustainable water and wastewater management
Version 2 | March 201848

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

covers sustainable infrastructure for clean and/or drinking water, wastewater treatment,sustainable urban drainage systems and river training and other forms of flooding mitigation.
Common Principles for Climate Mitigation Finance Tracking
The Common Principles for Climate Mitigation Finance Tracking (the Common Principles) havebeen developed by the joint climate finance group of multilateral development banks (MDBs)
and the International Development Finance Club (IDFC). The purpose is to set out agreed
climate change mitigation finance tracking principles for development finance. The MDBs andthe IDFC commit to the Common Principles in their respective, group-based climate mitigation
finance reporting.
The Common Principles provide a list of activities eligible for classification as climate mitigation
finance covering renewable energy, lower-carbon and efficient energy generation, energy
efficiency, agriculture, forestry and land use, waste and waste water, and transport, etc. The
treatment of wastewater needs to reduces methane emissions (only if net GHG emission
reductions can be demonstrated and if not a compliance requirement to meet, for example, aperformance standard or safeguard requirement) in order to be eligible.
China’s Green Bond Endorsed Project Catalogue
The Green Bond Endorsed Project Catalogue (the Catalogue) was released by Green FinanceCommittee of China Society of Finance and Banking (the Committee), endorsed by China’s
regulators including People’s Bank of China and China Securities Regulatory Commission(CSRC). The Catalogue provides categories of eligible projects and criteria for China’s green
bond market, covering 6 areas including energy saving, pollution prevention and control,
resource conservation and recycling, clean transportation, clean energy and ecologicalprotection and climate change adaption.
Eligible water projects include, for example, transformation of industrial water saving
technology, agricultural water saving irrigation, transformation of urban pipeline network forwater supply, integrated use of water resource, unconventional water use (including sea water
desalination, treatment and reuse of brackish water, recycling water, mine water), and the
supporting facility construction and operation of sponge city.
World Bank Green Bond Criteria
The World Bank established green bonds in 2007 with explicit reference to climate mitigation
and adaptation. It has an internally defined process for qualifying bonds that engages directlywith Bank clients (normally countries), often involving regional and technical support divisions of
the Bank. Water projects to date have varied over an order of magnitude in the size of bondofferings (up to several hundred million USD), spanning irrigation, hydropower, and many multipurpose infrastructure projects.
Sustainability is defined quite broadly by the Bank; sustainability criteria include consideration of
the disruption to social and natural systems. Indeed, water bonds issued by the Bank haveincluded money for resettlement of populations due to creation of new reservoirs (though thisVersion 2 | March 201849

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

may not be viewed as a social consideration for some audiences). Generally, the Bank’s
procedures are not described in detail and it is unclear how these are applied in principle orwhat types of internal criteria are used to define offerings.
Ceres Green Bond Principles
These principles have been proposed as an overall reporting basis for green bonds fortransparency. If investors and bond issuers follow the principles then we may expect a reporting
standard to develop so that bonds can be compared and potentially ranked according to how
they meet sustainability and resilience measures.
Barclays MSCI Green Bond Index
The Barclays MSCI index provides a measure for fixed income securities where the funds areused on projects with direct environmental benefits. This index was launched on 14 November
2014 following the trend of corporate investment in green bonds that began towards the end of
2013. The Barclays MSCI index, like other indices of this type, follows the principles laid out by
Ceres.
Eligibility and classification is defined by the MSCI ESG Research group, and is based on theuse of funds. To be eligible the use of proceeds must fall into one of the five specified
categories or have 90 percent of the issuer’s activity encompass one or more of the categories.
One of these categories is Sustainable Water, which covers products, services, and projects
that attempt to resolve water scarcity and water quality issues; infrastructure and engineering
projects developing new or repairing existing water and sanitation pipelines; technologies andproducts that reduce, reuse, or recycle water as a means of conservation; advanced materials,
equipment, technologies, and services that filter or chemically treat wastewater for consumer orindustrial use, including desalination; investments in protection of land, forests, and othervegetation in the upper watershed as means to improve the quality of water bodies andgroundwater recharge areas; and climate resilience projects (flood relief, mitigation) andsustainable forestry/afforestation.
Distribution of drinking water without measurable improvements to water quality, water
efficiency, or climate change resilience component is not eligible.
Although the index defines water sustainable projects as addressing both quality and quantity,
currently these terms are not well defined. For example, projects that have an efficiency
component are eligible, potentially conflating efficiency gains with sustainability. Similarly, waterconditions are implicitly defined as static and fixed, unchanging in the future, which isproblematic for projects that involve long-lived infrastructure.
Water Utilities Standards
Perhaps the best organised and defined group for integrating climate mitigation and climate
adaptation are water utilities. Groups such as the Water Utilities Climate Alliance (WUCA) havebeen active for more than a decade, while professional organisations including the International
Version 2 | March 201850

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Water Association (IWA), the International Water Resources Association (IWRA), the Chartered
Institution for Water and Environmental Management (CIWEM), the American Water Works
Association (AWWA), and the American Water Resources Association (AWRA) have all actively
been developing guidance on how to implement and integrate climate mitigation and adaptation,
often led with the support of particular members (e.g., Seattle Public Utilities and DC Water in
the US). Some cities have even published urban standards along these lines (e.g., San
Francisco Public Utility Commission) or guidelines to connect resilience to broader management
standards, such as the European Union‘s Water Framework Directive. Over time, we can expect
these local and sectoral initiatives to become regulatory frameworks, but these remain someyears away at this stage.

Version 2 | March 2018

51

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Appendix 4: Guidance on Water-Related Human Rights and Social Risks
for Issuers, Underwriters and Bond Buyers
Many investors recognise that water-related projects can be linked to complex social issues,
given that access to drinking water is a basic human right and negative impacts on water
resources can significantly affect other human rights (e.g. livelihoods, health etc.). The Climate
Bond Standard focusses on issues relating to climate change and does not cover the full
spectrum of environmental, social or governance issues that may relate to water related green
bonds.
For information, a number of well established guidelines or standards related to broader socialand environmental impacts of water infrastructure are listed below.
The Human Rights to Water and Sanitation:
In 2010, the United Nation’s (UN) General Assembly and Human Rights Council explicitly
recognised that water and sanitation are essential human rights.59 There are various duties thatstates have with respect to ensuring the provision of sufficient, safe, clean, affordable andaccessible drinking water and sanitation services to those within their jurisdiction. 60 Where
companies have taken on this role, they have particular responsibilities. For companies that do
not act as water service providers, their responsibility is to respect their rights –i.e. to avoid
negatively affecting them through their operations or those of their suppliers or other business
relationships. Several resources have been developed to help guide action in this area:
UN Office of the High Commissioner for Human Rights, Realising the Human Rights toWater and Sanitation: A Handbook by the UN Special Rapporteur Catarina De
Albuquerque, 2014.
UN Office of the High Commissioner for Human Rights, Guiding Principles on Businessand Human Rights, 2011.
Interfaith Center on Corporate Responsibility, The 2013 ICCR Water Roundtable:
Stakeholder Responsibilities in Managing Access to Water.
UN Global Compact, The CEO Water Mandate, Guidance for Companies on Respecting
the Human Rights to Water and Sanitation: Bringing a Human Rights Lens to Corporate
Water Stewardship, January 2015.
This Appendix was reviewed by the following individuals. Any errors, omissions or otherwise are
our responsibility.

59

United Nations General Assembly, Resolution 64/292, August 3, 2010.
http://www.un.org/waterforlifedecade/human_right_to_water.shtml
60
UN Global Compact, The CEO Water Mandate, Guidance for Companies on Respecting the Human Rights toWater and Sanitation: Bringing a Human Rights Lens to Corporate Water Stewardship, January 2015.
http://ceowatermandate.org/files/business-hrws-guidance.pdf

Version 2 | March 201852

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper•••

Rachel Davis - Managing Director, Shift Project
Patricia Jones - Senior Program Leader, Human Right to Water, Unitarian Universalist
Service Committee
Jamie Skinner - Principal Research, Natural Resources Group; Team Leader, Water,
International Institute for Environment and Development

Version 2 | March 2018

53

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

References
Abril, G., Guérin, F., Richard, S., Delmas, R., Galy-Lacaux, C., Gosse, P., et al. (October 13,2005). Carbon dioxide and methane emissions and the carbon budget of a 10-year old tropicalreservoir (Petit Saut, French Guiana). Global Biogeochemical Cycles, 19, GB4007. doi:
10.1029/2005GB002457
Ashe, K. (October 24, 2010). Methane Emissions from Tropical Dams. Retrieved 21 May 2015
from http://large.stanford.edu/courses/2010/ph240/ashe1/
Barros, N., Cole, J.J., Tranvik, L.J., Prairie, Y.T., Bastviken, D., Huszar, V.L.M, et al. (July 31,2011). Carbon emission from hydroelectric reservoirs linked to reservoir age and latitude.
Nature Geoscience, 4, 593-596. doi: 10.1038/ngeo1211
Beaulieu, J.J., Smolenski, R.L., Nietch, C.T., Townsend-Small, A., & Elovitz, M.S. (2014). High
Methane Emissions from a Midlatitude Reservoir Draining an Agricultural Watershed.
Environmental Science & Technology, 48, 11100-11108. doi: 10.1021/es501871g
Ebullition causes methane emissions in tropical reservoirs. (August 13, 2014). CNRS. Retrieved
22 May 2015 fromhttp://www.alphagalileo.org/Organisations/ViewItem.aspx?OrganisationId=533&ItemId=144471&CultureCode=en
4% of Global Warming Due to Dams, Says New Research. (May 9, 2007). International Rivers.
Retrieved 21 May 2015 from http://www.internationalrivers.org/resources/4-of-global-warmingdue-to-dams-says-new-research-3868
Guérin, F., Abril, G., Richard, S., Burban, B., Reynouard, C., Seyler, P., et al. (November 14,2006). Methane and carbon dioxide emissions from tropical reservoirs: Significance ofdownstream rivers. Geophysical Research Letters, 23, L21407. doi: 10.1029/2006GL027929
Li, S. & Lu, X. (2015). Uncertainties of carbon emission from hydroelectric reservoirs. Natural
Hazards, 62, 1343–1345. doi: 10.1007/s11069-012-0127-3
Lima, I.B.T., Ramos, F.M., Bamblace, L.A.W., & Rosa, R.R. (March 2, 2007). Methane
Emissions from Large Dams as Renewable Energy Resources: A Developing Nation
Perspective. Mitig Adapt Strat Glob Change, 13, 193-206. doi: 10.1007/s11027-007-9086-5
Magill, B. (November 25, 2013). U.S. Methane Emissions Vastly Underestimated: Study.
ClimateCentral. Retrieved 21 May 2015 from http://www.climatecentral.org/news/us-methaneemissions-drastically-higher-than-thought-says-study-16777

Version 2 | March 2018

54

Water Infrastructure Criteria under the Climate Bonds Standard – Background Paper

Magill, B. (October 29, 2014). Methane Emissions May Swell from behind Dams. Scientific
American Global RSS. Retrieved 22 May 2015 fromhttp://www.scientificamerican.com/article/methane-emissions-may-swell-from-behind-dams/
Reservoir Emissions. (2015). International Rivers. Retrieved 22 May 2015 fromhttp://www.internationalrivers.org/campaigns/reservoir-emissions
United Nations Framework Convention on Climate Change. (November 2014). Clean
Development Mechanism: CDM Methodology Booklet. Bonn: United Nations Climate Change
Secretariat. Retrieved 21 May 2015 fromhttp://cdm.unfccc.int/methodologies/documentation/index.html*************************************

Version 2 | March 201855