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Article - 5 Reasons Why Blue Bonds could be a Game Changer

March, 2017

Namita Vikas, Group President & Global Head – Climate Strategy & Responsible Banking, YES BANK, shares her views on how Blue Bonds could help channelize finance towards water security and lead India’s transformation towards a sustainable economy.

Climate change, pollution, overexploitation and decades of unsustainable practices have left the world’s limited fresh water resources in a perilous position. As we brace for a collective threat to global water security, in its crosshairs lies not only our industry and economy but our very way of life.    

With only 4% of the world’s fresh water reserves, India supports 18% of the global population, making the management of water resources, and water infrastructure, critical factors in meeting the country’s socio-economic developmental goals.

Along with the allocation of public finances, the development of climate-resilient, efficient and future ready water infrastructure, would need private investment to play a crucial role. Blue bonds – bonds whose proceeds are dedicated towards water infrastructure – could help channelize finance towards water security and lead India’s transformation towards a sustainable economy.

5 ways in which Blue Bonds could be a game changer are –

  1. Improving productivity of agriculture: blue bonds can be used to raise capital towards developing effective irrigation mechanisms geared to conserve water, adopting new technologies and customizing sustainable practices tuned to local conditions

  2. Improving and expanding fresh water sources: Financing the conservation and expansion of fresh water sources through water capture and storage infrastructure, wastewater management, and clean-up projects like the  National Mission for Clean Ganga, could be undertaken through blue bonds

  3. Facilitating climate adaptation: blue bonds could support climate adaptation efforts such as developing flood protection and disaster management systems and modernizing tools for data gathering, monitoring and planning

  4. Conserving marine and fresh water ecosystems: the blue bond market could play a crucial role in financing sustainable development in oceans and along the coastline by mainstreaming emerging ocean industries such as sustainable fisheries and aquaculture, and driving investments towards building a blue economy

  5. Higher efficiencies in Rural and Urban Water resources: blue bonds would help boost the efficiency of water resources, by raising the bar for transparency and efficiency in water projects and channelizing capital to projects with the lowest water footprint

Despite, the huge potential for blue bonds to drive the development of India’s sustainable water infrastructure, the country is yet to see its first blue bond issuance, due to their perceived high- risk. Creating an effective blue bonds market would need a pipeline of bankable projects, services such as securitization and credit enhancement, and a stricter policy framework, along with government support through issuances of sovereign and municipal water bonds.

The bond mechanism has already witnessed rising interest as a key tool in the development of climate resilient water infrastructure globally. Given the steady growth of green bonds in India, with a USD 2.7 billion market, since the country’s maiden green bond issuance by YES BANK in February 2015, blue bonds have a great potential to emerge as a mainstream financing mechanism for water related projects.

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