This chapter explores the state of play in the use of bond finance for water and analyses options for scaling it up. The first section provides definitions of the different types of bonds relevant to water financing, outlines the analytical methodology used and presents the rationale for leveraging bond finance for water. The second section provides an overview of recent trends in bond finance for water, at the global level but also by region, country, issuer type and level of issuance. The third section explores opportunities to expand bond issuance to finance long-term, impactful water investments, focusing on international frameworks and standards, as well as investor demand from key investor groups.
Financing Water Security
Models and Approaches for Investments that Last
Abstract
Bond finance holds significant potential for mobilising capital to support water-related investments. The mobilisation of capital from a broad investor base, combined with medium- to long-term repayment terms, makes it in principle well-aligned with the specificities of water-related investments. Additionally, bond finance is gaining prominence globally, which represents a timely opportunity for water investments.
Investments in water through bonds is rising but it still represents a marginal share of GSSS bonds, which itself represent a marginal share of the global bond market. Water- and blue-labelled GSSS bond issuance rose from USD 1 billion in 2022 to USD 6.4 billion in 2023, before reaching USD 4.7 billion in 2024. Despite this recent increase, water and blue-labelled bonds account for less than 1% of total GSSS bond issuance, which reached USD 1.1 trillion in 2024. In parallel, bonds with at least one mention to “water” or “blue” in their use of proceeds reached USD 290 billion in 2024, which means that a large proportion of water-related investments financed through bonds do not carry a “water” or “blue” label.
The expansion of bond finance for water is being driven by various enabling factors, such as growing investor demand, increasingly stringent Environment, Social, Governance (ESG) criteria, the growth of the GSSS bond market and supportive policies. Similarly, several types of bonds (including corporate, sovereign and municipal bonds) are gaining traction and are likely to continue to grow in the coming years.
However, several challenges persist, such as difficulties in clearly tracking the allocation of proceeds in multi-labelled bonds, consequent limited visibility into investments supporting water and related sub-sectors, investor concerns about revenue stability, complex regulatory environments and underdeveloped local capital markets in many developing countries.
Unlocking greater investment in water security and freshwater through bonds can be supported by the development of guidelines and standards for the issuance such bonds, the development of water finance taxonomies and the strengthening of impact reporting. Improving risk-return profiles through credit enhancement mechanisms, innovative financing mechanisms (such as revolving funds) or economic incentives (such as tax exemptions in the US) can also help to attract investors.
This section provides definitions of the different types of bonds that finance water-related investments, explains the methodology used for the analysis and makes the case for leveraging bond finance for long-term, impactful water-related investments.
The three datasets used for this analysis include data from the Green Bond Database, the Social and Sustainability Bond Database and the Sustainability-Linked Bond Database of the Climate Bonds Initiative (CBI), which provide detailed information about bonds, including the issuer, type of issuing institution, issuance amount, date, country, use of proceeds (i.e. how funds raised through the bond are used to finance different types of investments allocation of funds raised by the bond). More information on the datasets can be found in Annex A of this chapter.
The datasets contain three key variables that allow mapping bond issuance for water: the original bond label, the use of proceeds (UoP) and the key performance indicators. The original label assigned by the issuer categorises the bond based on its primary financing objective, which offers insight into the intended purpose of the proceeds. The UoP outlines the specific sectors, subsectors or projects that will be financed through the funds raised by the issuance. This chapter relies primarily on original label data, as UoP data is less comprehensive in the datasets and KPIs are used only for “sustainability-linked bonds” (which amounts in general and for water are marginal compared to other types of bonds). The analysis tracks labelled issuance volumes, not actual disbursed investments.
Bonds often contain several original labels, which can make it difficult to break down the proportion of financing allocated to each category. The methodology applied in this chapter is to consider the total volume of capital raised through bonds that contain at least one label qualified as water or blue by their issuers, referred as water- or blue-labelled bonds. Bonds that contain at least one water or blue label in the database have on average only 1.27 original labels, which minimises the margin of error (and suggests that around 80% of revenues probably supported water investments).
2.1.1. Definitions
Bonds are debt instruments that enable issuers, such as a governments, municipalities, or corporations, to raise capital from investors over a specified period (SNA, 2025[1]; CBI, nd[2]). Investors receive periodic interest payments (coupons) and are repaid the principal amount at maturity. Along with other capital market instruments, bonds are crucial sources of long-term financing to mobilise capital, including to close the financing gap for priority development objectives (Dembele, Schwarz and Horrocks, 2021[3]).
“Green” bonds are debt instruments whose proceeds are used to finance or refinance projects that generate a clear environmental impact. These bonds must align with the four core components of the Green Bond Principles (GBP) of the International Capital Market Association (ICMA): i) Proceeds from green bonds must be allocated to projects with clearly defined environmental benefits; ii) Issuers are expected to disclose the criteria and procedures used for project selection, including alignment with environmental objectives and risk management practices; iii) Proceeds should be tracked and managed transparently, ideally with third-party verification; iv) Annual reporting on fund allocation and expected environmental impacts is required to ensure accountability and maintain investor confidence (ICMA, 2021[4]; ICMA, 2023[5]). Eligible green project categories include renewable energy, energy efficiency, water security and wastewater management, pollution prevention and control, eco-efficient or circular economy-aligned products, green buildings, terrestrial and aquatic biodiversity conservation, and clean transportation.
“Social” bonds are issued to finance projects that directly address or mitigate specific social challenges and aim to achieve positive social outcomes for vulnerable populations. Eligible social project categories include affordable basic infrastructure (including clean drinking water, sewers, sanitation), access to essential services, affordable housing, employment generation, food security and socioeconomic advancement or empowerment (ICMA, 2023[6]).
“Sustainability” bonds combine elements of both green and social bonds, with proceeds directed to a mix of green and social projects. These bonds must align with the four core components of both the GBP and the Social Bond Principles (SBP) (ICMA, 2021[7]). The SBP are similar to the GBP (mentioned above) yet tailored to social benefits and objectives (ICMA, 2023[5]).
Many “green, social and sustainability” (GSS) bonds allocate proceeds to water-related projects, even if they do not explicitly carry a water or blue label (CBI, 2024[8]). These bonds often finance infrastructure for wastewater treatment, flood resilience, irrigation and water supply systems under broader themes, such as resilience, smart cities or biodiversity. For example, green bonds issued for environmental resilience may include water resource management projects, while social bonds targeting essential services often support access to safe drinking water and sanitation in underserved communities (CBI, 2024[8]).The absence of water labelling for these bonds makes it difficult to track and assess the volume of bond financing directed specifically toward water investments.
Unlike GSS bonds, which allocate proceeds to specific projects, “sustainability-linked” bonds (SLBs) are general-purpose bonds, whose financial terms are tied to the achievement of environmental and social performance targets (OECD, 2024[9]). In other words, the use of proceeds of SLBs are not assigned to specific sectors, subsectors or projects. The capital raised can be allocated across various areas, provided it aligns with the predefined Environmental, Social and Governance (ESG) objectives. These ESG objectives of SLBs are assessed through KPIs specified in the bond documentation such as water use intensity, proportion of recycled water or water supply levels, ensuring transparency and accountability over a defined period (ICMA, 2024[10]). As a forward-looking instrument, SLBs go beyond project-based models, offering greater flexibility for corporate and sovereign issuers integrating environmental and social commitments into their financial strategies. By linking financial incentives to measurable outcomes, SLBs encourage issuers to enhance performance in areas such as water efficiency, emissions reduction and biodiversity conservation (CBI, 2024[11]).
“Blue” bonds are a relatively new addition to the impact-focused debt market, designed to finance both ocean and water-related projects. ICMA defines blue bonds as a debt instrument structured in accordance with the Green Bond Principles, where the funds raised are solely allocated to supporting projects that enhance ocean conservation and improve water resource management, either through new investments or refinancing existing initiatives (IFC, 2022[12]). Thus, blue bonds are not leveraged to improve water security only but also aquatic life and biodiversity. Some guidelines, such as those developed by ICMA and the Asian Development Bank (ADB) primarily focus on ocean-related projects (IFC, 2022[12]). Others, such as the IFC Blue Finance Guidelines, place greater emphasis on freshwater-related themes, covering both SDG 6 and SDG 14. According to the ICMA, blue bonds are classified under green bonds, as depicted in Figure 2.1.
As illustrated in Figure 2.1 and mentioned the Annex Methodology for the Analysis, a bond does not need to be explicitly classified as a blue bond to support investments related to water security or oceans.
Note: Water- or blue-labelled bonds refer to bonds bearing water or blue mark assigned by their issuer. The classification relies on issuers’ categorisation. SLBs can include water-related KPIs; nevertheless, there is no SLB carrying a water or blue label by the issuer in the dataset.
Source: Authors based on (ICMA, 2023[5]).
2.1.2. The case for scaling up bond finance for water
Bonds are, in principle, an appropriate instrument for financing water-related investments, owing to their capacity to mobilise capital over the medium to long term. Water-related investments, such as water supply systems and wastewater treatment, often require significant upfront investment with long repayment periods. Bonds, particularly those with medium- to long-term maturities, tend to provide stable, predictable repayment schedules that can in principle align with the lifespans of such investments. The average time to maturity of water- or blue-labelled bonds issued between 2014 and 2025 is nine years, based on CBI data (see Annex A). This average is of ten years for green bonds, eight years for “social and sustainability bonds” and six years for SLBs. This time frame aligns well with the medium to long payback periods and capital needs of water investments. To incentivise profit-maximising investors to allocate capital to water-related instruments when they may offer lower risk-adjusted returns than alternative investment opportunities, the asset-liability matching case is a promising avenue, particularly for institutional investors with long-dated liabilities. Water infrastructure assets typically have operational lifecycles of 50 to 100 years, generating stable and predictable cash flows over extended periods while also providing a potential hedge against nature-related financial risks, an increasingly important consideration for pension funds, insurers and other long-term investors.
Bonds also represent strong potential for water-related investments for their ability attract capital from a variety of investors and tap in a broad investor pool. Unlike commercial loans, which are typically issued by a single bank or a consortium of banks, bonds allow multiple investors – including institutional investors such as pension funds and insurance companies – to participate in financing water investments. This characteristic is particularly appealing for investors seeking relatively low-risk, long-term and stable returns (OECD, 2024[13]). Corporate bonds, for instance, provide a reliable channel for long-term capital, supporting stronger balance sheets and enabling sustained investment. Unlike bank credit, which is often pro-cyclical, corporate bond markets offer a more stable source of finance across economic cycles (OECD, 2024[14]).
Bonds are increasingly prominent in global capital markets, presenting a significant opportunity to expand bond-based financing for long-term water investments. This is particularly relevant given that water-related investments currently constitute only a marginal proportion of the global bond market. Global annual bond issuance reached nearly USD 25 trillion in 2024 (OECD, 2025[15]), with a consistent upward trend since 2020. GSSS bonds have also been rising significantly for the past years, reaching USD 1.1 trillion in 2024, as well as bonds bearing water or blue labels, although the share of GSSS bonds compared to the overall bond market remain marginal and the share of bonds bearing a water or blue label remain marginal compared to the overall GSSS bond market. These trends are analysed in-depth in the second section.
While bonds bearing “water” or “blue” labels encourage issuers to earmark part of their investments to water and allow to track these investments, flexibility in the labelling can also allow access to wider sources of capital. Water or blue labels offer issuers a strategic signal of their environmental commitment, enhancing their reputation and potentially broadening their appeal to impact-conscious investors (IFC, 2022[12]). For investors, these labels support the alignment of portfolios with long-term goals, notably related to clean water and sanitation and life below water. Labelling also encourages issuers to earmark water-related spending, addressing the challenge of tracking water investments in multi-labelled bonds (CBI, 2024[8]). Over time, this could lead to more accurate data, promote standardisation and attract additional private capital to the sector. At the same time, use of screening criteria rather than strict labels, can limit the fragmentation of the market and allow to access broader pools of capital, including not initially dedicated to water.
This section provides an overview of recent trends in bond finance for water, at the global level but also by region, country, issuer type and level of issuance.
2.2.1. Global trends
The global GSSS bond market saw a significant rise in bond issuance with water or blue labels in 2023 and 2024 in absolute terms. These two years accounted for 58% of the past decade’s total volume of water or blue labelled bonds, highlighting growing interest in financing water-related investments through bonds. Figure 2.2 shows that water- or blue-labelled bond issuances reached USD 11.4 billion in 2023 and 2024, surpassing the USD 8.1 billion recorded over the period running from 2015 and 2022. However, issuance declined by 23% in 2024 (from USD 6.4 billion in 2023 to USD 4.7 billion), largely due to a drop in green bond issuance with a water label, from USD 3.4 billion to USD 1.5 billion. Despite this decrease, bond financing with water or blue labels maintains an overall upward trend. The total issuance of GSSS bonds bearing water or blue marks in their original labels1 in the period 2015-2024 is recorded at USD 19 billion, averaging USD 1.9 billion per year.
Bonds associated with water at any degree – based on their UoP, original labels or KPIs – are primarily GSS bonds, with minimal representation from SLBs. Of the total USD 1.6 trillion in bond issuance over the period of 2015-2024, 99% of the total issuance are classified as either green bonds (65%) or “social and sustainability bonds” (34%). While the water- or blue-labelled bond market was dominated by green bonds until 2022, social and sustainable bonds with such labels markedly surged in 2023 and 2024, surpassing green bonds in this market for the first time in 2024 (see Figure 2.2). SLBs account for the remaining 1%, reflecting their marginal role with respect to water-related financing. It is important to note that a water-related KPI in SLBs can include water withdrawal levels or water use intensity in other sectors and do not necessarily indicate an investment in water. Thus, assessing the contribution of SLBs in water financing is challenging (OECD, 2024[9]).
Note: GB: Green Bonds, SNS: Sustainability and Social Bonds.
“Blue/Water labelled” refers to bonds labelled with water or blue tags by their issuers.
Source: Authors based on CBI dataset.
Despite the recent increase in 2023 and 2024, water- or blue-labelled bonds continue to represent only a small fraction of the global GSSS bond market, accounting for less than 1% of total bond issuance globally. According to CBI datasets, the total GSSS bond market was valued at USD 51.3 billion in 2015 and expanded nearly 21-fold, reaching USD 1.1 trillion in 2024. The expansion of water-labelled bonds has therefore not been as fast as the growth of the overall GSSS bond market, as shown in Figure 2.3. In 2015, water and blue-labelled bonds represented 2% of that market, whereas they only accounted for 0.4% of the market in 2024. An exception to this trend has been observed between 2022 and 2023, when their share has increased from 0.1% to 0.7%.
Note: “Blue/Water labelled” refers to bonds labelled with water or blue tags by their issuers.
Source: Authors based on CBI dataset.
The Global Debt Report 2024 analysis estimates the share of water and wastewater management bonds in GSS bond issuance, excluding SLBs, at between 4% and 6%, depending on issuer type, for the period 2014 to 2023 (OECD, 2024[13]) (see Table 2.1). These estimates differ from those derived from the empirical analysis in this chapter, indicating a share of less than 1% for the period 2015-2024 (see Figure 2.3). As the timeframes differ by only two years (2014 and 2024), the discrepancy primarily arises from two key methodological differences between the analyses. A key distinction lies in the source of the data. While the Global Debt Report 2024 analysis employs OECD Corporate Sustainability dataset and the London Stock Exchange Group (LSEG) dataset, the analysis used in this chapter utilises dataset provided by the CBI. Another key distinction is the primary variable used for sectoral allocation: while the analysis in Table 2.1 relies on UoP descriptions, this chapter uses primarily original labels due to gaps in UoP data. The flat allocation method applied in the Global Debt Report 2024 assumes equal distribution of proceeds across all listed sectors in the UoP description. For example, a bond of USD 1 000 with water and energy UoP would allocate USD 500 to each sector, regardless of actual fund distribution (OECD, 2024[13]).
Note: This table is retrieved from OECD’s report titled “Global Debt Market 2024” which analyses datasets provided by OECD Corporate Sustainability and London Stock Exchange Group (LSEG).
Source: (OECD, 2024[13]).
To date, blue bonds have largely been issued to finance investments in marine ecosystems rather than freshwater resources. The first sovereign blue bond, issued by Seychelles in 2018, raised USD 15 million for fisheries, marine protection and the blue economy (CBI, 2024[8]). Subsequent issuances by multilateral institutions, including the Nordic Investment Bank and ADB, focused on marine biodiversity, coastal resilience and pollution reduction. While these bonds have advanced ocean-related targets, they have contributed little to freshwater investments, such as water supply, sanitation and watershed management.
An analysis based on use of proceeds and KPIs, not original labels (mostly used in this chapter for reasons of data completeness as indicated in the methodology section) gives a different perspective. The relatively high volume of GSSS bonds with water- or blue-related UoP or KPIs suggests that significant capital is being raised for water-related investments, even in the absence of a corresponding original label. Indeed, in 2024, bonds with at least one mention to “water” or “blue” in their UoPs reached USD 290 billion in 2024 (see Figure 2.4). However, this does not give a precise vision of the volume of finance which went to water from these bonds, since most of the UoP contained mentions to other sectors.
Note: GB: Green Bonds, SLB: Sustainability-Linked Bonds, SNS: Sustainability and Social Bonds.
The volumes correspond to bonds with at least one mention related to “water” or “blue” in their UoP, which often contain mentions to other sectors. Therefore, it does not give the exact amount of proceeds related to water.
Source: Authors based on CBI dataset.
2.2.2. Breakdown of bond issuance by region and issuer type
Between 2015 and 2021, the issuance of blue and water-labelled bonds remained relatively stable, with Europe leading the market. In 2020, Asian issuers entered the market, contributing a significant share. The sharp increase in 2023 was largely driven by issuers from Latin America and the Caribbean (LAC), as shown in the following figure. According to the data, issuers in North America are less likely to label their bonds as “water” or “blue”; however, this does not imply that such bonds do not support water-related investments. North American issuers actively issued GSSS bonds with water- or blue-related UoPs or impact-linked KPIs between 2015 and 2024. In parallel, the volume of water- or blue-labelled bond issuance in Africa is very limited, with only one recorded issuance from Cabo Verde’s International Investment Bank, which issued a USD 3.4 million bond in 2023. More broadly, Africa accounts for less than 1% of total GSSS bond issuance globally, based on data from CBI.
This trend continued in 2024, though with a slight decline in both Asian, European and LAC issuances. The expansion in 2023 and 2024 highlights the growing recognition of bond financing as a viable tool for water-related investments, with increasing participation from regions beyond Europe, although their share is marginal compared to GSSS bond issuance.
The limited issuance of water- or blue-labelled bonds as well as other GSSS bonds in other regions such as Africa and the Middle East reflects structural challenges. In Africa, elevated interest rates, complex issuance procedures and the absence of dedicated regulatory frameworks for such instruments constrain market development (Menon, 2024[16]). In both regions, gaps in technical capacity, weak institutional frameworks and limited investor confidence in impact finance further impede progress. While impact-driven bond issuance is gradually expanding in the Middle East, particularly led by the UAE and Saudi Arabia, volumes remain relatively low compared to Latin America and Europe. This is partly due to economic volatility, nascent impact reporting practices and uneven policy implementation (UNDP and GWP-Med, 2016[17]). These conditions help explain the slower uptake of bond instruments relative to global frontrunners.
Notes: “Blue/Water labelled” refers to bonds labelled with water or blue tags by their issuers. LAC: Latin America and the Caribbean. Middle Eastern countries are classified under the Asia region in the CBI data.
Source: Authors based on CBI dataset.
Blue and water-labelled bonds are issued by different types of organisations. Between 2015 and 2024, on average, government-backed entities, including national banks and state-owned water utilities, accounted for the largest share of total issuances (38%), followed by non-financial corporates2 (23%), financial corporates (14%) and sovereign issuers (12%) and development banks (12%), while local government issued only a marginal share of such bonds (1%).
The most recent data indicates a changing landscape. In 2023, government-backed entities remained dominant (although their share had reduced to 31%), while non-financial corporates and development banks increased their share, respectively to 29% and 18%. In 2024, government-backed entities continued to hold a significant share at 28%, while the share of development banks decreased to 6% and financial corporate issuances dropped to 1%. The share of sovereign issuers increased to 21%. Non-financial corporates2 dominated the market in 2024, with a 44% share, signalling a shift towards greater corporate participation in the blue and water-labelled bond market. This trend stems mostly from the increasing interest of certain water companies (private and mixed with both public and private shareholders) to issue bonds to finance their water investments. As mentioned above, corporate bonds offer a stable source of long-term financing, enhancing corporate balance sheets and facilitating sustained investment. They serve as a counter-cyclical alternative to bank credit, which tends to fluctuate with economic cycles (OECD, 2024[14]).
Note: Blue/Water labelled refers to bonds labelled with water or blue tags by their issuers.
Source: Authors’ calculations on CBI dataset.
A cross-analysis of issuer types and regions shows that in 2024, LAC saw the largest increase in blue and water-labelled bonds, reaching USD 2.4 billion, driven mainly by non-financial corporates, including private and mixed water companies. Europe followed with USD 1.1 billion, where government-backed entities played a key role. In Asia, issuances totalled USD 1.1 billion, primarily from sovereign bonds, with smaller contributions from non-financial public and private corporates (USD 77 million) and local governments (USD 22 million).
At the global level, supranational issuers,3 such as for instance the Central American Bank for Economic Integration (CABEI) and the Asian Development Bank (ADB), had a limited presence, with only USD 35 million of issuances in 2024, representing only 0.7% of the total water- or blue-labelled bond issuance (USD 4.7 billion).
The dominance of LAC, Europe and Asia in water-related bond issuance in 2023 and 2024 reflects a growing commitment to water-related investments through bond financing in these regions, with a diverse range of issuers. This distribution highlights the expanding recognition of blue and water-labelled bonds as effective financial instruments for addressing water security challenges across different countries with various economic and institutional settings. Possible drivers for such increase in issuance in 2023 and 2024 include the development of standards, taxonomies and the leadership of pioneering financial institutions. For example, in Europe, the European Green Bond (EUGB) Standard, which was developed upon the EU Taxonomy, aims to establish a unified legal framework for the issuance and verification of green bonds within the EU (OECD, 2025[18]). In Brazil, the Ministry of Finance launched a public consultation in late 2023 to develop a national taxonomy for sustainable activities, integrating both environmental and social objectives, including water access. Similarly, Colombia has established a sustainable finance framework through the adoption of the Green Taxonomy, incorporated via External Circular 005 of 2022 issued by the Financial Superintendency of Colombia (SFC), which provides guidance for classifying environmentally sustainable economic activities, including those related to water resources. Since 2016, the Inter-American Development Bank (IADB) has played a key role in advancing the green capital markets in LAC, supporting over 30% of issuances by volume, particularly first-time issuances in local markets (OECD, 2024[13]).
Note: Blue/Water labelled refers to bonds labelled with water or blue tags by their issuers. LAC: Latin America and the Caribbean.
Source: Authors based on CBI dataset.
An analysis of bond issuances based on UoPs or KPIs4 shows a slightly different perspective of the breakdown by region and issuer type. In 2024, supranational institutions (mostly multilateral and regional development banks) issued USD 99 billion of bonds including water-related KPIs or UoPs. Asia-Pacific and Europe each recorded around USD 72 billion in issuances, mainly driven by sovereign and financial corporate issuers. LAC and North America reported similar volumes (USD 22-23 billion), with balanced issuer profiles. Bonds issuances in the similar category in Africa totalled around USD 1 billion in 2024. Weak local capital markets, characterised by limited depth, low investor confidence and weak regulatory frameworks, particularly in low- and middle-income countries such as those in Sub-Saharan Africa, restrict GSSS bond issuance and access to long-term capital for water infrastructure (CBI, 2024[8]).
Note: LAC: Latin America and the Caribbean.
The volumes correspond to bonds with at least one mention related to “water” or “blue” in their UoP, which often contain mentions to other sectors. Therefore, it does not give the exact amount of proceeds related to water.
Source: Authors based on CBI data.
2.2.3. Breakdown of issuance by country and main issuers
The Netherlands and Brazil have emerged as the largest issuers of blue and water-labelled bond, with total issuances reaching USD 6.7 billion (34% of total globally) and USD 4.5 billion (23% of total), respectively in the period 2015-2024. While the Netherlands have a relatively stable yearly issuance across the period (with a few exceptions), Brazil experienced a significant increase in the years 2023 and 2024 (see Figure 2.9).
NWB Bank, the Netherlands’ sole issuer of water-labelled bonds, has been the most consistent global issuer over the past decade, with cumulative issuances of USD 6.7 billion (2015-2024).
Brazilian issuers collectively raised USD 4.4 billion across 2023 and 2024, marking the highest concentration of water-related bonds in LAC. This issuance was primarily driven by non-financial corporates such as Aegea (USD 1.8 billion), SABESP (USD 1 billion), and other regional water and sanitation utilities, including Rio+ Saneamento, CORSAN and Prolagos, as depicted in Table 2.2. Águas do Rio, a subsidiary of Aegea, the largest private sanitation company in Brazil (second largest at the global level), issued in total USD 1.2 billion in 2023 and USD 0.7 billion in 2024. These bonds, categorised as a GSS bond, carry water and other labels as designated by Águas do Rio. Its UoP includes energy, water, waste, land and biodiversity, which makes the exact allocation of funds to water difficult to track. A similar UoP structure is observed in the 2023 GSS bond issuance by the Basic Sanitation Company of the State of São Paulo (Companhia de Saneamento Básico do Estado de São Paulo - SABESP), valued at USD 1 billion, although this bond does not include biodiversity as a targeted investment area. Alongside Companhia Riograndense de Saneamento (CORSAN), which was privatised in 2022, Rio+ Saneamento, a private water and sanitation provider serving 18 municipalities in Rio de Janeiro, issued bonds totalling USD 514 million to finance water infrastructure investments in the city. The prominence of private sector issuers reflects Brazil’s well-established water utilities market, where companies play a leading role in financing water infrastructure and services. Government-backed entities in Brazil also contributed, albeit at a lower scale. Sanepar and CASAN, which are water companies with public and private capital, with the local governments as the majority shareholders, raised a combined USD 381 million, demonstrating subnational public sector involvement in water financing. However, there was no sovereign issuance from Brazil, indicating that water investments remain primarily driven by corporates and local governments rather than by the national government due to the governance structure of the Brazilian water sector.
Note: “Blue/Water labelled” refers to bonds labelled with water or blue tags by their issuers. The countries with total issuance volume below USD 100 million are not included in this graph.
Source: Authors based on CBI dataset.
At country level, all issuers combined, China appears as the third global issuer in the period 2015-2024, with a total issuance of USD 2.1 billion. China’s involvement in water-labelled bond issuance is led by corporate and government-backed entities rather than sovereign issuers. China Merchants Bank issued bonds for USD 400 million in 2023, marking one of the largest bond issuances related to water from a financial corporate in the region. Meanwhile, Qingdao Water Group, a government-backed entity, issued multiple bonds reaching the total amount of USD 118 million in 2023-2024.
Note: Blue/Water labelled refers to bonds labelled with water or blue tags by their issuers.
Source: Authors’ calculations based on CBI dataset.
At the issuer level, the Republic of Indonesia was the third-largest global issuer in 2023 and 2024, with total sovereign issuances reaching USD 1.1 billion. The issuance volume surged from USD 144 million in 2023 to USD 987 million in 2024 (see Table 2.2). Although the bonds are officially labelled as blue, their UoP spans multiple sectors, including energy, waste, water and land. These sovereign issuances align with Indonesia’s policy focus on infrastructure resilience and adaptation, particularly in water and sanitation (SWA, 2022[19]).
The Export-Import Bank of South Korea also ranked among the top issuers in 2023-2024, due to a single issuance of USD 1 billion in 2023. Funds raised were dedicated to water management, particularly projects promoting marine ecosystem-friendly practices, and investments in marine electricity generation facilities and water transport infrastructure (DNV, 2024[20]).
Japan’s participation in the market has been primarily driven by sub-national and non-financial corporate issuers. The cities of Chiba and Kumamoto issued USD 77 million in water-related bond in total over the period of 2023-2024, signalling some engagement by local governments, albeit at a much smaller scale compared to other issuers. Among non-financial corporates, Metawater, a Japanese company specialising in water and environmental engineering, issued a bond totalling USD 68 million, demonstrating the role of private firms in water-related infrastructure and services.
Beyond Brazil’s large issuance in LAC, Ecuador recorded notable sovereign issuance of USD 656 million in 2023, as well as issuances from financial corporates. Although the funds from the sovereign bond were mostly dedicated to marine conservation activities (IADB, 2023[21]), the stated UoP includes water and land use components. Costa Rica’s largest public commercial bank, Banco Nacional de Costa Rica (BNCR), raised USD 50 million in government-backed issuance in 2024. The blue bond adheres to the Social and Green Bond Principles, as well as Blue Bond Guidelines established by ICMA and the UoP include buildings, water, waste and land. Mexico’s Trust Funds for Agriculture (FIRA), a development bank, issued a USD 221 million bond, while a Peruvian national public development bank, the Development Finance Corporation (Corporacion Financiera De Desarrollo S.A. - COFIDE) raised USD 26 million in 2024 through water-labelled bond issuances. This highlights the role of development banks in LAC, alongside non-financial corporates such as water companies in scaling up water- or blue-labelled bond issuance to finance water investment.
2.2.4. By level of issuance (supranational, national, subnational)
Between 2015 and 2024, supranational issuers raised USD 1 billion through water- or blue-labelled bonds, accounting for 6% of global GSSS issuances (see Figure 2.10). The largest supranational issuers were ADB and Nordic Investment Bank, with USD 420 million and USD 392 million of issuances, respectively (see Table 2.2). Other two supranational issuers included Inter-American Investment Corporation (IDB Invest) and Central American Bank for Economic Integration (CABEI).
In contrast, sub-national issuances remained limited, accounting for 1.3% of the global GSSS issuance, totalling USD 243 billion in the period 2015-2024. The largest municipal water-related bond, amounting to USD 152 million, was issued by the Municipality of Shenzhen, a major city in southeastern China that serves as a gateway between Hong Kong and mainland China. The UoP is exclusively allocated to water treatment and supply projects within the city.
Note: Every bond that are not classified as subnational and supranational in the CBI database. Blue/Water labelled refers to bonds labelled with water or blue tags by their issuers.
Source: Authors based on CBI dataset.
As mentioned above, two Japanese cities, Chiba and Kumamoto, issued USD 77 million in water-related municipal bonds in 2023 and 2024 (see Table 2.2). These issuances were denominated in local currency, with proceeds directed towards water infrastructure, sanitation and land use projects linked to biodiversity. Despite its modest size (USD 14 million), the Atlanta Water and Wastewater bond in the US, issued in 2019, is another example of municipal financing for water-related investments.
Municipal and sub-national bonds offer a viable pathway to scale up water investments by enabling local governments to finance infrastructure aligned with regional water needs. As water supply, sanitation and environmental resilience are primarily managed locally, these debt instruments can mobilise long-term capital for critical projects. Of the USD 127 billion of bonds with water-related UoP issued in North America in the period 2015-2024, 14 % (USD 18 million) originated from municipal issuers. Countries with established municipal bond markets, such as the US and India, have successfully leveraged these instruments, with programs like the U.S. Environmental Protection Agency’s Water Infrastructure Finance and Innovation Act providing credit enhancements to reduce borrowing costs (OECD, 2023[22]). Over the last decade, municipal water and wastewater utilities issued important volumes of bonds (even though not always labelled with water or blue marks), with an increase from USD 31 billion in 2014 to USD 44 billion in 2024 (GWI, 2025[23]). Some innovative mechanisms such as the Clean Water State Revolving Fund and tax-exempt status, allowed to reduce borrowing costs and ensure steady returns for investors (EPA, 2017[24]). Municipal bond issuers from North America and the United States rarely apply water or blue original labels to their issuances, even when a substantial share of proceeds is allocated to water-related investments (visible in the UoPs).
By issuing sub-national or municipal bonds, local government debt becomes tradeable on secondary markets, allowing multiple investors to purchase portions of that debt and allowing securitisation (OECD, 2022[25]). However, adoption remains limited in emerging markets due to credit risks, weak capital markets and the absence of standardised issuance frameworks. Strengthening regulatory frameworks, improving credit ratings and leveraging blended finance with DFIs can enhance investor confidence and expand municipal bond financing for water projects (CBI, 2024[26]).
This section explores opportunities to expand bond issuance to finance long-term and impactful water investments, examining enabling tools such as taxonomies, standards, and reporting frameworks to boost transparency and investor trust, as well as demand from key investor groups.
2.3.1. Guidance, frameworks and standards for water/blue bonds
Clear guidance and standardised frameworks are key to scale up water investments through bonds. Investment taxonomies and verification mechanisms can be deployed to ensure transparency, accountability and alignment with environmental goals, boosting investor confidence. However, current frameworks often lack the specificity needed for freshwater investments and global water security. Enhancing these standards will improve market integrity, comparability and capital mobilisation for impactful water investments.
Standards supporting water-related bond issuance
Guidance from multilateral and bilateral institutions on (water-related) bonds can help scale up bond financing for water by attracting investors, enhancing market credibility and ensuring alignment with long-term objectives. Various international associations (including CBI and the International Capital Market Association - ICMA), multilateral development banks (including ADB) and development finance institutions (such as the International Finance Corporation - IFC), have developed voluntary guidelines, which include criteria and best practices, to support the standardisation of the issuance of water and blue bonds. These frameworks can play a role in aligning the UoPs with water-related investments, supporting transparency in the use of proceeds and mobilising both public and private capital at scale (CBI, 2018[27]; IFC, 2022[28]; ICMA, 2023[5]). Such guidance can help address key challenges including fragmented market practices, lack of standardisation and limited investor awareness. Furthermore, the predominance of ocean-focused projects among blue bonds underscores the need for clearer differentiation in blue finance frameworks to expand funding for water-related infrastructure. Strengthening guidance on freshwater investments within blue finance taxonomies can help address water security challenges more effectively.
For example, CBI developed a set of standards used to certify green bonds and loans that finance water-related projects: the Water Infrastructure Criteria. These criteria ensure that water-related bonds and loans contribute positively to environmental management and long-term resilience. These criteria distinguish water-focused green bonds from conventional water bonds by ensuring that proceeds are used for environmentally aligned projects, such as watershed restoration, industrial water efficiency and large-scale water supply infrastructure (CBI, 2018[27]). By 2020, projects with a total valuation of around USD 7 billion had obtained certification under the Water Infrastructure Criteria across various regions, including the United States, Nigeria, South Africa, China and Australia (Cooper and Matthews, 2020[29]). This certification indicates alignment with environmental standards, reinforcing transparency and investor confidence in water-related investment and helping to direct financing toward long-term water investments. By applying screening criteria, in addition to issuer labelling, frameworks such as CBI’s Water Infrastructure Criteria provide an encompassing approach to scale up water investments through bonds which are not necessarily labelled “water” or “blue”. This mitigates the risk of fragmentation by recognising a broader set of eligible projects, including those not explicitly labelled as “blue” or “water”, but which contribute to water security. These criteria can align issuer and investor expectations around environmental outcomes, facilitate access to green capital and promote wider adoption of good practices across the water sector (CBI, 2022[30]).
As outlined at the beginning of the chapter, the Green Bond Principles (GBP) developed by ICMA serve as a key benchmark for green bond issuance. Similarly, the Social Bond Principles (SBP), Sustainability-Linked Bond Principles (SLBP) and Sustainability Bond Guidelines (SBG)5 provide guidance for issuers, influencing the development of more detailed frameworks by financial institutions (ICMA, 2021[4]; ICMA, 2023[5]). For example, IFC’s Blue Finance Guidelines build upon these principles to address water and marine-related investments. These pillars ensure transparency, accountability and alignment with responsible objectives, reinforcing investor confidence in thematic bond markets. Similarly, ICMA’s guidance on financing the blue economy is based on GBP and promotes standardisation across issuers, underwriters and investors, helping scale the market for blue-labelled debt instruments, including bonds and loans (ICMA, 2023[5]). It also strengthens transparency by encouraging disclosure requirements that enable investors to evaluate environmental impacts of bonds.
Role of governments and MDBs in strengthening market architecture for water-related bonds
Establishing national guidelines for water and blue bonds can also support the scaling up of bond finance for water and attract domestic institutional investors. National green finance frameworks in countries such as Indonesia and Malaysia are setting clearer eligibility criteria for water-related investments, providing guidance for bond issuers through rigorous classification of activities and sectors related to water (OECD, 2022[31]). In particular, the Green Bond and Green Sukuk (Islamic bonds) Framework, which was issued by the Indonesian Ministry of Finance in 2018, contributed to the large amount of water-labelled sovereign green bond issuance by the Indonesian government (USD 1.3 billion). Similarly, the Guidelines on Issuance of Corporate Bonds and Sukuk (Islamic bonds) to Retail Investor, developed by the Securities Commission Malaysia was another positive initiative in the region. However, the guidelines lack depth on water-related items.
MDBs are increasingly playing a role in developing frameworks and setting standards for investments in water through bonds. The IFC developed a Green Bond Framework, a set of guidelines that govern the issuance of green bonds, aiming to ensure that funds raised through IFC’s green bonds are allocated to environmentally aligned projects. This framework is aligned with the GBP of the ICMA (mentioned above). Furthermore, IFC introduced guidelines for blue finance,6 mapping water-related investments under the GBP and Green Loan Principles (GLP). The document provides a list of eligible use of proceeds to support private investments aligned with the GBP and GLP, and contributing to SDG 6 and 14, aiming to support the increase of water-related investments through loans and bonds. These guidelines define eligible blue finance projects for green bonds and loans, including water supply, sanitation, marine ecosystem restoration and water-friendly industrial processes (IFC, 2022[28]). Similarly, the IsDB, along with ICMA and LSEG, is exploring the integration of Shariah-compliant sukuk with green bond principles to broaden the investor base for impact-driven water finance. In their guidance on GSS sukuk, similarly to blue bonds, blue sukuk is considered under green sukuk (ICMA, IsDB and LSEG, 2024[32]).
Enhancing water-related taxonomies and impact reporting frameworks
The limited visibility of water-related activities within existing GSSS financing frameworks may reflect market inefficiencies driven by classification and disclosure gaps. The absence of clear identification of water-related investments limits the ability to track financial flows, assess needs, and price risks and opportunities, contributing to their underrepresentation in financing markets and potentially hindering capital allocation toward water security objectives. Addressing these gaps strengthens the case for a dedicated water taxonomy or more specific classification criteria and highlights the need to further develop criteria and methodologies for investments in the sustainable management of water resources.
At the national and regional levels, taxonomies have enabled more consistent classification of environmentally relevant activities, improved transparency in capital allocation and supported the development of coherent green finance frameworks across sectors. For instance, at the European level, the EU Taxonomy has played a pivotal role in shaping the European Green Bond (EUGB) Standard, providing a structured framework for water-related and broader green bond issuances across the region. By defining clear eligibility criteria for environmentally aligned activities, the taxonomy enhances market transparency, mitigates greenwashing risks and strengthens investor confidence. For water-related investments, the EU Taxonomy outlines technical screening criteria, covering areas such as water supply efficiency, wastewater treatment and flood risk management, ensuring that green bond proceeds support tangible environmental improvements (OECD, 2025[18]). The EUGB Standard, aligned with the taxonomy, mandates issuers to disclose project alignment with these criteria, reinforcing accountability and facilitating the mobilisation of capital for water infrastructure (OECD, 2025[18]). At national level, established frameworks such as the U.S. Water Infrastructure Finance and Innovation Act, the Clean Water State Revolving Fund or the Colombian Green Taxonomy, among others, have demonstrated effectiveness in mobilising long-term financing for water investments, including investments in wastewater treatment, drinking water systems and related environmental infrastructure.
Enhanced and comprehensive guidance on freshwater-related bond standards is required, underpinned by the development of more sophisticated and harmonised taxonomies. Despite progress, existing frameworks used for issuing water-related bonds remain fragmented and lack depth to provide comprehensive guidance. Most blue bond standards are centred on marine conservation, offering limited applicability for freshwater-related investments such as drinking water supply, sanitation services or watershed restoration (S&P, 2024[33]). Technical criteria are insufficiently defined, with limited clarity on project eligibility and weak assurance of environmental benefits related to freshwater-related investments.
Enhanced taxonomies are essential to enable more precise classification of freshwater-related activities and to guide the development of bond standards. For instance, SLBs lack water-specific KPIs and the broad flexibility in target-setting weaken their relevance for freshwater outcomes. These limitations restrict the scalability and impact potential of water-related bonds. Addressing them will require the development of harmonised and inclusive taxonomies that better reflect the full scope of water investments and offer clearer guidance to regulators, issuers and investors.
Water-related investments across bond categories
The limited uptake of water and blue bonds is partly explained by the lack of standardisation, reporting, tracking and impact measurement compared to other types of bonds, in particular green bonds. Green bonds currently dominate the GSSS bond market, benefiting from well-established frameworks, clearer eligibility criteria and stronger recognition among investors (CBI, 2018[27]). Water is often included under green bonds due to clearer standards and stronger investor confidence, and blue bonds are still often associated with ocean and marine-related investments. For instance, some sukuk contributing to finance water investments have been labelled as SRI7 sukuk, with no reference to water in the label. Furthermore, the presence of multiple labels for bonds can lead to difficulties in accurately tracking the volume of investments going to water in general and to water sub-sectors (including freshwater), thereby reducing transparency, investor interest and potentially the actual amount of investments reaching the sectors. Issuers and investors face additional hurdles related to revenue stability, regulatory fragmentation and underdeveloped local capital markets in some jurisdictions.
The choice of the bond category is context-specific and critical in securing investor interest. In certain regions, these instruments are more commonly classified as green rather than blue, primarily due to higher levels of standardisation; however, in other contexts, categorising them as blue may appeal to thematic investors. The emergence of blue bonds presents an opportunity to direct capital more explicitly towards water-related outcomes. However, some voices support that the promotion of blue bonds as a distinct category without consistent standards for freshwater investments could lead to regulatory fragmentation, inefficiencies and increased transaction costs (IFC, 2022[12]). It is important to recall that green bonds initially faced similar concerns before evolving into a widely trusted instrument. With the development of coherent standards, robust taxonomies and institutional support, blue bonds could similarly gain traction as an effective tool to scale water finance. Rather than prioritising one label over another, an integrated approach may be more appropriate, one that enhances the visibility, credibility and impact of water-related investments across all relevant finance instruments.
The lack of impact measurement and reporting for water-related bonds poses a challenge for investors and issuers (Bosmans and De Mariz, 2023[34]). Bond managers are increasingly calling for more precise impact reporting to strengthen transparency and accountability (Environmental Finance, 2023[35]). Subsequently, leading international financial institutions, including the EIB, developed a harmonised impact reporting framework to enhance data comparability and ensure consistent assessment of financed projects. Mandating impact reporting for all water-related bonds, drawing on best practices from disclosure regulations and CBI certification standards, could improve market transparency (CBI, 2024[8]). Furthermore, harmonisation of methodologies is required for effectively assessing the size of water-related bond markets. While labelled issuance remains limited, broader estimates that include any mention of water suggest much larger volumes, creating confusion about actual market size. Aligning methodologies and improving disclosure are essential to ensure reliable data, support informed decision-making and avoid misleading signals on capital flows. Labelling aside, enhancing transparency and credibility in water-related bond financing requires consistent post-issuance reporting on the allocation of proceeds. Many bonds support water-related investments without a dedicated water or blue label, limiting the ability to trace financial flows. At the same time, when bonds carry multiple thematic labels, the proportion of proceeds allocated to water-related activities is often not clearly identified. Strengthening post-issuance disclosure requirements would help address these gaps, facilitate the tracking of environmental and social impacts, and support the development of more targeted and accountable financing strategies.
2.3.2. Growing investor demand for green and water-related bonds
Investors in water-related bonds, including blue bonds and green bonds with water-focused use of proceeds, represent a diverse landscape, driven by a combination of financial returns and impact-driven investment objectives. This market includes institutional investors, impact investors, development finance institutions (DFIs) and corporate entities, each with distinct investment strategies, risk appetites and priorities. While the market for blue and water-related bonds is expanding, it remains a niche within the broader impact finance landscape, presenting substantial opportunities for further growth (CBI, 2024[8]). In the green bond market, funds often support cross-sectoral investments that include water projects. This can contribute to offset water investments’ perceived high-risk profile and contribute to attract investments (CBI, 2022[30]).
2.3.3. Type of investors
Institutional investors, including pension funds, insurance companies and asset managers, are increasingly active in green bond markets, including water-related bonds (Rabobank, 2024[36]). Their interest is shaped by a dual mandate to generate stable long-term returns while aligning investments with environmental and social criteria. Water risks are gaining prominence in these assessments, ranking as a critical concern among institutional investors, following cybersecurity and anti-corruption risks (Rabobank, 2024[36]). Despite this growing interest, challenges such as limited secondary market liquidity, inconsistent impact reporting and a lack of standardised metrics hinder broader institutional participation. However, regulatory frameworks such as the EU Sustainable Finance Disclosure Regulation are incentivising asset managers to increase allocations to impact-linked investments, including water security (OECD, 2022[31]). Expanding the issuance of water-related bonds and improving impact measurement frameworks could further strengthen institutional investor engagement.
Impact investors prioritise investments that generate measurable environmental and social benefits alongside financial returns. Blue and water-labelled bonds align well with these objectives, directly financing projects related to marine conservation, fisheries, water infrastructure and environmental resilience. The Seychelles’ 2018 blue bond issuance demonstrates how these instruments attract impact-driven investors by funding initiatives that enhance marine ecosystems while delivering economic benefits (Euromoney, 2025[37]). However, despite growing participation, impact investors face challenges related to the lack of standardised methodologies for measuring the environmental and social impact of water-related investments. Unlike green bonds, which benefit from more structured reporting practices, water finance lacks widely accepted frameworks for assessing metrics such as water quality improvements, biodiversity conservation or reduced water stress (Bosmans and De Mariz, 2023[34]). Addressing this gap through harmonised impact reporting frameworks could facilitate greater impact investor participation in the water finance market.
Corporate entities are playing an increasing role in the water-related bond market as both issuers and investors, using bond instruments to finance viable water infrastructure and manage water-related risks. As mentioned previously in the chapter, non-financial corporate entities such as utilities, water service providers and industries with high water dependencies are aligning capital expenditures with impact-oriented investment commitments through bond issuance (CBI, 2024[8]). Additionally, financial corporates such as private and state-owned commercial banks, investments banks and trust funds issued water-related bonds in the same period to finance their investments in water.
Risk management and investor confidence
MDBs and DFIs, including the WB, IFC and the ADB, play a crucial role in de-risking water investments and mobilising private capital through investing in bonds, guarantees, co-investment mechanisms and concessional financing. These institutions are issuing blue- and water-labelled bonds to channel capital towards projects delivering environmental and economic benefits in marine and freshwater ecosystems. Additionally, they support the water- or blue-labelled bond market by providing credit enhancements that lower investment risk, acting as anchor investors to establish credibility and assisting governments in designing regulatory and policy frameworks that enable bond issuance for water-related investments (CBI, 2024[26]). However, their engagement in water-focused bonds remains relatively limited compared to other sectors such as energy and infrastructure (CBI, 2024[26]). Strengthening their role through dedicated blue/water bond facilities and blended finance approaches could unlock additional capital for water-related investments. In 2021, ADB issued a dual-tranche blue bond raising USD 310 million for marine and freshwater conservation in Asia and the Pacific, supporting water management and environmental resilience. The bond’s use of proceeds includes freshwater-related investments, including ecosystem restoration, natural resource management and solid waste management to prevent freshwater contamination. ADB’s investment in a green bond issued by Georgia Global Utilities JSC (GGU) for resilient water supply, demonstrates how MDBs can provide de-risking mechanisms through investing in bonds to attract other types of investors (ADB, 2024[38]). Similarly, the Inter-American Development Bank’s (IDB) 2022 green bond issuance of USD 1 billion financed resilient water and sanitation projects in Latin America, attracting institutional investors through alignment with green finance standards (CBI, 2024[26]).
National governments can also contribute to de-risking water-related bond issuances by providing guarantees that enhance creditworthiness and attract investors (Laubenstein and Leflaive, 2024[39]). Sovereign and partial credit guarantees lower default risk, making long-term water investments more viable, particularly in emerging markets. Expanding guarantee schemes for subnational governments and municipal utilities, alongside integrating risk-sharing mechanisms within blended finance structures, can further strengthen private sector participation in water investments (Laubenstein and Leflaive, 2024[39]).
Issuers with strong credit ratings are generally more attractive to investors, as such ratings indicate lower default risk and enable access to capital on more favourable terms. In the case of water-related bonds, higher credit ratings allow issuers to reach a broader investor base and reduce borrowing costs, thereby enhancing the financial viability of water investments. For example, the Dutch NWB Bank has maintained a AAA credit rating since 1996, with a credit risk similar to the Dutch government, supporting its ability to issue large volumes of GSSS bonds, including those related to water, with strong investor demand (see Box 2.2). In contrast, weaker credit ratings can increase capital costs or restrict market access, limiting the capacity of issuers to raise long-term financing for water investments through capital markets.
Scale is a determining factor for investor interest and bond market viability. Having the ability to secure a sufficiently large volume of eligible and bankable water investments is not straightforward for all issuers. Notable examples of large water bonds, including bonds from NWB Bank, but also the Viveracqua Hydrobond in Italy and Saur’s blue bond in France, highlight the effectiveness of aggregating a diversified portfolio of water-related projects to achieve the critical mass required for benchmark-sized issuance. These cases underscore the importance of project consolidation and pipeline development in meeting institutional investor expectations and facilitating access to capital markets. This is a particularly acute challenge in the water sector as water infrastructure is often small-scale and locally managed, especially in rural or decentralised contexts. Beyond the financing of large transactions, the question of adapting these instruments to small-scale water projects arises. Strengthening the capacity of issuers, particularly public utilities and municipalities and developing platforms to aggregate smaller investments are clear options to support small-scale investments through capital markets.
NWB Bank is a national bank, which is majority-owned by the Dutch water authorities (81%), with minority stakes held by the Dutch State (17%) and provinces (2%). The bank provides financing to local and regional authorities responsible for water management, as well as to the health care, education and public housing sectors.
NWB Bank maintains a AAA credit rating, with a credit risk similar to the Dutch government, supporting its ability to attract investors and issue large volumes of water-related bonds. As of 2025, NWB Bank's total balance sheet stands at EUR 79 billion, including EUR 25 billion in impact-oriented funding.
NWB Bank was the world’s first issuer of water and blue-labelled bonds in volume in 2023 and 2024, issuing a total of USD 2.9 billion, significantly surpassing the volume issued by any other bond issuer during the same period, according to data from CBI.
The proceeds are channelled to Dutch water authorities, the governmental bodies responsible for flood protection, water management and water quality. These funds support projects related to energy recovery from wastewater, flood protection and other flood defences, sanitation and dredging of waterbeds, transport and cleaning of wastewater and disposal of sewage sludge.
The NWB Bank experience highlights that scaling water investments through bond finance requires:
Structuring instruments that meet institutional investors’ demands, namely, benchmark-sized issuances with long maturities and strong credit ratings (AAA).
A clear, dedicated water bond framework aligned with recognised taxonomies (e.g. EU Green Bond Standard) and supported by independent second-party opinions (e.g. Shades of green by CICERO and now Standards & Poor).
Positioning water bonds within the context of adaptation, resilience and biodiversity to strengthens their appeal to investors.
Robust impact reporting (e.g. detailed annual reporting on environmental impacts such as reduced flood risks or improved water quality) and independent verification with quantitative metrics to build investor confidence and facilitates comparability across issuances.
Source: (NWB Bank, 2025[40]).
2.3.4. Innovative bonds instruments
The design of bond instruments and the structure of financing mechanisms are also critical in securing investor interest, with a view to scale up bond finance for water. The ability of water-related bonds to attract investors relies as much on the quality of the underlying projects, the structure of financing mechanisms and the robustness of associated reporting systems as on the bond labels themselves.
The analysis reveals limited freshwater investment via bonds, primarily due to lack of standardised reporting, blue bonds being biased towards ocean-related investments and the scale requirements of bond issuance while many water investments are local. This section does not exhaustively examine all innovative bond instruments but highlights key potentials:
Performance-linked or outcome-based bond instruments (such as impact bonds, resilience bonds and SLBs), combined with credit enhancement mechanisms, can catalyse freshwater investments by shifting financing toward measurable social and environmental outcomes as market standards evolve.
Municipal and local currency bonds offer a scalable financing avenue by enabling subnational governments with sufficient creditworthiness and governance transparency to mobilise capital tailored to community water needs.
Perpetual bonds present a potential solution to credit rating constraints and market access challenges, particularly for low-income countries.
Performance-linked bond instruments
Impact bonds represent an innovative, results-based financing mechanism that attracts private capital to pre-finance water investments through performance-based contracts, where investor returns are contingent on independently verified social or environmental outcomes rather than fixed interest payments (ICMA, 2021[41]; Trotta, 2024[42]). This pay-for-performance model shifts financial risk away from public entities, enhances accountability and incentivises innovation to tackle complex water security challenges. The model is particularly relevant to water security investments, including freshwater investments, due to the sector’s clear, measurable impact metrics and the substantial upfront capital requirements. A survey by the Global Impact Investing Network (GIIN) shows that one in five investors is considering the use of social impact bonds to finance their WASH investments in emerging markets and developing economies (Trotta, 2024[42]). Environmental impact bonds (EIB), a subset of impact bonds, have demonstrated their potential by financing green infrastructure to improve water quality and flood resilience, exemplified by successful issuances like the District of Columbia Water and Sewer Authority (DC Water) (World Bank, 2021[43]) and Atlanta Flood bond8 (Atlanta Watershed Management, 2019[44]). Scaling impact bonds requires strong public-sector capacity to design and contract outcome-based schemes (Brand et al., 2021[45]), as explained in the chapter on result-based finance mechanisms.
Despite their current limited share (1%) in the water- or blue-labelled GSSS bond market (as evidenced in the previous sections), SLBs can support water-related investments by tying financial terms to predefined impact performance targets, while allowing issuers full discretion over the use of proceeds. They therefore hold significant potential for areas such as water security, biodiversity, resilience and social development – which have strong financing needs but typically lack pipelines of sizeable and bankable assets necessary to use GSS bonds. Because SLBs are backed by the full financial strength of the issuer, rather than by a set of specific green or social projects, they allow issuers to issue bigger and longer-term bonds than traditional GSS bonds. They can also be linked to existing nationally defined, sector-specific performance benchmarks and thus increase their credibility and issuers’ accountability (OECD, 2024[9]). However, concerns over weak SLBs ambition, limited transparency and small coupon step-ups have affected their credibility (Ul Haq and Doumbia, 2022[46]). To address SLB bottlenecks, an OECD report recommends supporting technical assistance, developing local guidelines, selecting ambitious KPIs and targets, strengthening data capacities, improving bond design and scaling market transactions in developing countries (OECD, 2024[9]). Additionally, other studies show that combining such bonds with credit enhancements, like guarantees, has the potential to reduce the cost of capital and crowd in investors (David et al., 2025[47]).
Resilience bonds offer a promising way to mobilise funding for water-related investments that support adaptation and disaster preparedness (Laubenstein and Leflaive, 2024[39]). By linking bond repayments to the financial savings from avoided losses, such as reduced insurance payouts or emergency response costs, they create incentives to invest in infrastructure that mitigates flood risks, protects watersheds and improves water system reliability. In urban settings, for instance, they can fund nature-based solutions like wetland restoration or permeable surfaces, while in coastal areas, they support projects that demonstrate measurable reductions in flood risk, helping municipalities lower insurance costs and attract investment. Notable examples include the Forest Resilience Bond in California, which raised USD 4 million to restore forestland and reduce wildfire risk (US EPA, 2021[48]) and the EBRD’s resilience bonds, which have mobilised USD 1.4 billion since 2019 (EBRD, 2019[49]). However, the broader application of resilience bonds requires clear methodologies for calculating avoided losses and strong institutional frameworks to manage and allocate the resulting financial benefits.
Subnational bond markets: municipal bonds and local currency bonds
Municipal bonds can play a critical role in financing water investments at the subnational levels. Their effectiveness has been demonstrated since the early twentieth century, particularly in the United States, where between 90% and 95% of financing for drinking water infrastructure is sourced through municipal bond markets (Agrawal and Kim, 2022[50]). These instruments provide subnational governments with access to long-term capital, allowing for infrastructure investment while spreading repayments over time.
Municipal bond markets outside the US, particularly in the Global South, remain limited but are showing early signs of growth, especially in Southeast Asia and parts of Africa. Examples include a green municipal bond issued by Ba Ria Vung Tau province in Viet Nam for water-related projects (ADB, CBI and ASGF, 2024[51]), a EUR 18 million ten-year green bond by Tanga UWASA in Tanzania to expand water infrastructure for over 26 000 people (UNCDF, 2024[52]) and USD 77 million in water-related bonds issued by the cities of Chiba and Kumamoto in Japan between 2023 and 2024. Supportive frameworks have also emerged, such as the Local Government Unit Guarantee Corporation in the Philippines (OECD, 2010[53]) and new municipal bond regulations introduced in Indonesia by the Financial Services Authority in 2024. These developments highlight emerging momentum, though further growth will require targeted technical assistance, regulatory support and risk mitigation to help mobilise capital for local water infrastructure. Municipal bonds present a strategic opportunity to expand financing for water investments by leveraging the fiscal authority of local governments and their capacity to secure debt through tax revenues. Unlike sovereign bonds, they are typically issued to finance specific infrastructure projects, enabling more targeted and transparent resource allocation. Sovereign bonds generally offer greater liquidity than municipal bonds, owing to their larger market size, higher trading volumes, broader institutional investor participation and more transparent pricing mechanisms, which facilitate efficient secondary market transactions. However, municipal bonds can also attract long-term, impact-oriented investors and, in some cases, offer tax incentives or lower risk due to ring-fenced revenue streams. While liquidity in municipal bond markets, especially in developing countries, is more limited than for sovereign bonds (Schwert, 2017[54]), their strategic value in mobilising subnational finance justifies policy efforts to improve market depth, transparency and investor confidence. Under certain conditions and in specific cases, cities and water utilities may demonstrate stronger creditworthiness than sovereigns, owing to stable revenue streams, sound financial management and limited exposure to macroeconomic volatility, particularly when supported by robust institutional frameworks or credit enhancements.
Governments can play a crucial role in supporting municipal bonds by establishing clear legal and regulatory frameworks that enable local authorities to issue debt efficiently and transparently. In particular, scaling municipal bonds for water investment can be supported through tax incentives that enhance investor appeal. In the United States, for example, interest income from municipal bonds is often exempt from federal, and in some cases, state and local taxes (Agrawal and Kim, 2022[50]). This increases the tax-equivalent yield, making municipal bonds more attractive despite lower nominal returns. In high-tax settings, such incentives lower borrowing costs for municipalities and broaden the investor base. Indonesia has progressively reformed its municipal bond regulatory framework, led by the Financial Services Authority (OJK), to streamline issuance procedures, enhance transparency and promote impact-oriented finance through updated regulations, including frameworks supporting GSSS bond issuance.
Mobilising domestic capital through local bond markets provides a strategic approach to scale up financing for water infrastructure while strengthening financial resilience and viability. Issuing bonds in local currency enables municipalities and utilities to tap into domestic investor bases, such as pension funds and insurance companies, which are well suited to provide long-term capital aligned with infrastructure requirements (UNCDF, 2024[52]). Local currency financing also reduces exposure to exchange rate risk by matching debt service obligations with project revenues, thereby enhancing the financial stability and bankability of water investments (OECD, 2022[31]), improving predictability for both issuers and investors. They also facilitate access to capital for smaller-scale service providers, particularly when combined with pooling mechanisms or credit guarantees that enhance creditworthiness. In doing so, local currency bonds can contribute to the development of domestic capital markets and support the long-term growth and stability of water-related investments. Successful domestic issuances, particularly those labelled as green or blue bonds can build market confidence, attract international investment and encourage replication. For instance, Georgia Global Utilities JSC issued a USD 300 million, five-year certified green bond partially denominated in local currency to upgrade Tbilisi’s water supply network, with ADB investing USD 40 million to improve access to potable water for 1.4 million people and strengthen resilience, while mitigating currency risk and adhering to international green bond principles (ADB, 2024[38]).
Perpetual bonds
Water infrastructure assets, such as dams and pipelines, often have lifespans exceeding 50 to 100 years (Laubenstein and Leflaive, 2024[39]); perpetual bonds can provide a suitable financing instrument by offering indefinite funding that aligns with the longevity of these assets and eliminates refinancing risk. Perpetual bonds are bonds with no set maturity date. Rather than repaying the principal, the issuer undertakes to provide ongoing interest payments for an indefinite period (Igan, Kim and Levy, 2021[55]). Most perpetual bonds are issued by governments or financial institutions, with water-specific examples remaining uncommon. A notable historical exception is the bond issued in 1648 by the Water Board of Lekdijk Bovendams in the Netherlands. Remarkably, the holder was still receiving interest payments as of 2025, underscoring the long-term nature and durability of such instruments (CFI, n.d.[56]). Perpetual bonds, by aligning the financial horizon of investors with the operational lifespan of infrastructure, can attract long-term capital while reducing refinancing risk and exposure to interest rate volatility. This structure is particularly suited to public entities or utilities with stable revenue streams, enabling the financing of capital-intensive investments without immediate repayment obligations. However, perpetual bonds carry risks such as interest rate sensitivity, potential coupon deferrals, reinvestment uncertainty due to call options, lower repayment priority and limited liquidity in secondary markets.
Perpetual bonds may also enable countries with lower credit ratings to access capital markets without rigid repayment schedules, helping to preserve national fiscal autonomy. By shifting investor focus from full principal repayment to ongoing interest servicing, these instruments create opportunities for broader and more equitable participation in financing. As the risk assessment focuses on the issuer’s ability to meet annual interest payments rather than repay principal, this model can improve access to capital markets for low- and middle-income countries seeking to finance water-related investments. The liquidity and income profile of perpetual bonds may also appeal to investors seeking long-duration assets backed by essential public services, such as water provision.
References
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← 1. As explained in the methodology section, this chapter uses primarily original labels due to gaps in UoP data.
← 2. A non-financial corporate refers to a privately or publicly owned company operating in sectors outside financial services, including water utilities, infrastructure and sanitation services. A government-backed entity is a public or semi-public organisation that operates independently but receives financial or strategic support from a national or regional government. A financial corporate is a privately owned or publicly traded financial institution engaged in banking, investment or fiduciary services. Sovereign issuers are national governments.
← 3. Supranational issuers refer to international organisations or entities formed by multiple governments. Bonds issued by supranational issuers e.g., World Bank, Asian Development Bank, International Finance Corporation, differ from sovereign bonds issued by a single government.
← 4. Bonds with at least one mention related to water in their UoPs or KPIs.
← 5. As mentioned earlier in the chapter, these guidelines build on four key principles: i) Proceeds must be allocated to projects with clearly defined environmental or social benefits; ii) Issuers are expected to disclose the criteria and procedures used for project selection, including alignment with environmental or social objectives and risk management practices; iii) Proceeds should be tracked and managed transparently, ideally with third-party verification; iv) Annual reporting on fund allocation and expected environmental or social impacts is required to ensure accountability and maintain investor confidence.
← 6. According to the IFC, “blue finance is an emerging area in green finance with increased interest from investors, financial institutions and issuers globally. It offers tremendous opportunities to help safeguard our access to clean water, protect underwater environments and invest in the water economy. Blue Bonds and Blue Loans are financing instruments that raise and earmark funds for investments such as water and wastewater management, reducing ocean plastic pollution, marine ecosystem restoration, responsible shipping, eco-friendly tourism or offshore renewable energy.”
← 7. socially responsible investment
← 8. The USD 14 million Atlanta Flood Environmental Impact Bond, developed by Quantified Ventures for the Proctor Creek Watershed, funds green infrastructure to reduce stormwater runoff, improve water quality, and lower flood risk. It is the first EIB open to public investors, enabling greater public capital mobilization (Atlanta Watershed Management, 2019[44]).