Alternative World Water Forum

The proponents of a water climate bonds standard launched a consultation among issuers, investors and potential buyers of these bonds. Gone totally unnoticed in Europe, this project springs up at a time when the generalized indebtedness of States and their local governments reduces their ability to finance projects related to water[1]. The following comments are not intended to “improve” the standard as part of the consultation but to explain why it should be rejected.

Declared Goal and Underlying Goal of the Water Climate Bonds Standard

The declared goal is to develop a “green bonds market that encourages investment for a low-carbon and climate resilient economy” by providing investors with “verifiable scientific criteria for evaluating water-related obligations” (p. 3).

The “low-carbon and climate-resilient” aspect of the water climate bonds matters very little to the investors. They are primarily interested in bonds whose issuers are reliable and that pay back as much as possible in as little time as possible, through a “liquid” market, that is, one which allows for speculation. The real purpose of the water climate bonds standard is to develop such a market. The water climate bonds respecting the standard should provide investors with “a comparable investment opportunity relative to non-green-labeled bonds”, “reliability of expected cash flows” and be “sizable and liquid ” bonds (p. 8).

Who are the promoters of the Water Climate Bonds Standard?

The consortium of the water climate bonds standard consists primarily of US think tanks operating in the field of economy and green finance (WRI, CERES, CDP, Climate Bonds Initiative) and in the field of water resources management (AGWA). Investment funds, banks and private companies are over-represented in these think tanks. It also includes representatives of international institutions like the WTO, the OECD, and the World Bank.

The think tanks of the consortium have an international vocation and for this reason Europeans are also present in their steering committees, their boards and their staffs: for example, representatives of the Swedish Institute SIWI (Stockholm World Water Week organizers), representatives of the consulting company of Dutch origin Arcadis (one of the worst in the area of ​​the nature financialisation). The French Pascal Canfin, former MEP and former Secretary of State for Development, is Senior Advisor on International Affairs Climate for WRI. When Pascal Canfin was Secretary of State, he made himself known to the French water movements by declaring his unconditional support of the French water private companies in their feat to conquer new markets in developing countries. After resigning his post as Secretary of State, in 2014 he chaired the Scientific Committee of the Euronext Low Carbon 100[2].

Financialisation of Nature

The green bonds market, and its subset water-climate bond market, can only exist in the context of the financialisation of nature. Ecosystems are thus defined as “natural infrastructures” (p. 44) providing “services” (p. 6). These “natural infrastructures” and these “ecosystem services” are quantified, assessed (monetary value) and compared to the “green and water infrastructure” and to environmental services resulting from human activities. Quantification, assessment and comparison can only be artificial in view of the complexity of the workings of ecosystems, whether or not subject to water-climate projects, and to the length of their evolution; quantification, assessment and comparison exist only to serve the purposes of financial markets. The financialisation of nature leads to several adverse effects such as ecosystems and infrastructure grabbing by finance[3] and using compensation mechanisms as preferred solution to climate change, loss of wetlands and biodiversity[4].

Water and Climate

A water-related project is eligible for the water climate bonds standard only if it contributes to mitigating or adapting to climate change. The only admissible climate change cause is the accumulation in the atmosphere of greenhouse gases (GHGs). Water-related projects should reduce GHG emissions in the atmosphere, increase their storage or adapt to floods and droughts resulting from climate change (p. 8). The water cycle is not seen as a determinant of climate. Types of projects such as “New Water Paradigm” aiming at restoring a “good” water cycle and to fight against climate chaos are in fact little or not compatible with the water climate bonds standard.

Eligible Projects for the Water Climate Bonds Standard

Some of the projects considered to be eligible for the water climate bonds standard pose serious environmental and / or social problems: inter-basin water transfers, hydroelectric dams, artificial recharge of groundwater, desalination, dykes, etc. Water supply projects in the mining industry are also considered as eligible! All projects require the use of expensive technologies some of which are energy-intensive. It should be noted that dams that are exemplified (Himalayas, the Mekong River Basin) are major environmental disasters and affect the living conditions of local residents (p. 6).

Evaluation Criteria for Water Climate Bonds

Financial as well as social and environmental rating agencies are totally discredited since the 2008 subprime crisis followed by the debt crisis in 2010. By offering “scientific” criteria for evaluating water climate bonds, the promoters of the standard are trying to convince its ratings will be objective and not subjective as with existing rating agencies. This is false. For proof, just read how the criteria are developed (paragraph 4, p. 16-29). The definition of project categories (p. 18) and their role in mitigation and / or adaptation are completely arbitrary, as the definition of higher, acceptable and not acceptable thresholds. We find the usual financial engineering tricks here amplified by the assumptions made by “experts” of the technical working group (Appendix G, p. 50) on the relationship between climate and water.

Human Rights Related To Water

The consortium recognizes that some eligible projects for the water climate bonds standard may not meet the water-related human rights and lead to “social risks for issuers, underwriters and bond buyers” (p. 42). However, the consortium does not intend to include in its standard criteria based on water-related human rights. It proposes instead to rely on existing standards that incorporate these criteria, in addition to its own standard (p. 3). Bond issuers are required to apply these additional standards and buyers are required to verify that the issuer applies is compliant. The consortium cites several of these standards, including the declaration of the UN General Assembly on the human rights to water and sanitation (p. 42) and “Hydropower Sustainability Assessment Protocol” of the International Hydropower Association (p. 43). Note that the human rights to water and sanitation as defined by the UN General Assembly are not being implemented almost anywhere and the World Bank regularly supports projects that violate these rights[5]. As for the “Hydropower Sustainability Assessment Protocol”, the people affected by hydroelectric dams see it as a tool for dam builders and not as one to defend the rights of people.

[1] State and local government debts led the USA to reform the financing of its water infrastructure with public bonds that was highly favorable to the private sector. See the series of articles by Truthout: Water Wars and Creeping Privatization, Big Players Promote Water Privatization

[2] Of the 100 ‘low-carbon’ European companies on the Low Carbon 100 Europe Index Euronext factsheet, there is a high proportion of financial and banking companies such as BNP (French leader of tax havens and fossil fuels financing), car manufacturers (Peugeot, Renault), construction companies (Bouygues), chemical companies (Bayer) and one water private operator (Severn Trent). The BNP actually proposes a tracker based on the Euronext Index.

[3] Ecosystems and infrastructure grabbing by the world of finance is more or less already at work in the water withdrawal rights markets as they currently exist in the US, Australia, Chile and in Spain.

[4] The Caisse des Dépôts et Consignations, the public French investment bank, operates via its subsidiary CDC Biodiversité, an investment fund whose purchase of shares can compensate for the loss of wetlands and biodiversity. The NWB, public Dutch investment bank has a similar financial product. The bill relating to biodiversity currently discussed in France could introduce the concept of reserves of natural assets and thereby perpetuate the compensation mechanism by financial markets.

[5] The World Bank supports water-climate projects through its subsidiary International Finance Corporation. Once an unconditional supporter of the total privatization of public services, the World Bank is now defending the constitution of public-private partnerships and tends to finance more and more projects of this sort.

English translation of an article on the website of Aldeah

Categories: Global stories

Comments are closed.