Investments in this strategy aim to secure the quality of water for downstream users by protecting water at its source through nature-based solutions.

The sections below include an overview of the strategy for achieving desired goals, supporting evidence, core metrics that help measure performance toward goals, and a curated list of resources to support collecting, reporting on, and using data for decision-making.

What

Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Around the world, changes in land use and land cover—including converting forests and other natural land cover to pasture or cropland—drive the deterioration of water quality in streams, rivers, and lakes (23). The conversion of forest and other natural land cover to pasture or cropland often increases sedimentation and nutrient pollution (19). Agriculture and urban activities are major sources of phosphorus and nitrogen pollution, which can seriously degrade aquatic ecosystems and impair the use of water for drinking, manufacturing, agriculture, recreation, and other purposes (4). As of 2014, the average drinking water catchment for the world’s largest cities was covered by 40% forest, 30% cropland, and 20% grassland and pasture. Protecting or restoring the natural infrastructure of these and other catchments can directly enhance water quality for ecosystems, human consumption, and other important uses (1).

Investments aiming to improve water quality for downstream users by protecting water at its source can:

  • Protect natural land cover and ecosystems (such as forests and wetlands);
  • Encourage wetland and riparian restoration by re-establishing the hydrology, plants, and soils of former or degraded wetlands, rivers, and streams;
  • Encourage revegetation to reduce erosion and infiltrate runoff water into the soil;
  • Implement agricultural best management practices, including cover crops, conservation tillage, precision fertilizer application, irrigation efficiency, and agroforestry;
  • Implement ranching best management practices, including silvopasture (combining trees with forage pasture and livestock), improved grazing management practices, range structures, and land treatments;
  • Manage fire risk, including by reducing forest fuel through mechanical thinning or controlled burns;
  • Foster water-use planning processes in projects that change how land is used;
  • Furnish decision-support tools informed by hydrologic modeling; and
  • Supply and encourage innovation in technology to monitor water quality.

What is the scale of the problem?

The global transition from undisturbed to human-dominated landscapes has impacted ecosystems worldwide (22). While three-quarters of the Earth’s accessible freshwater comes from forested watersheds, 40% of the world’s 230 major watersheds have lost more than half of their original tree cover (12).

Natural wetlands continue to be lost and degraded through drainage and conversion, introduction of pollution and invasive species, extraction activities, and other actions affecting the water quality and frequency of flooding and drying (24). Since 1970, 81% of inland wetland species and 36% of coastal and marine species have declined in population (24). Since the 1990s, water pollution has worsened in almost all rivers in Latin America, Africa, and Asia (24). Severe pathogen pollution affects one-third of rivers in Latin America, Africa, and Asia, with fecal coliform bacteria increasing over the last two decades (24). According to the Ramsar Convention Secretariat, by 2050, one-third of the global population faces projected exposure to water with excessive nitrogen and phosphorous, which leads to rapid algal growth and decay that can kill fish and other species (24).

Who

Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

Terrestrial ecosystems: From 2001 to 2014, an average of 4,873,900 hectares of forest were lost each year across the drinking water catchments of 4,000 cities around the world (1). Fifty-one percent of the International Union for Conservation of Nature red-listed terrestrial species are found within urban drinking water catchments, including 1,047 imperiled amphibian species, 537 mammals, and 650 birds (1).

Freshwater ecosystems: Activities such as water withdrawals and dams impact freshwater ecosystems, which face a wide range of additional threats (1). Polluted waters also often threaten aquatic species more directly and seriously than terrestrial species (1).

Marine ecosystems: Nutrient impacts in freshwater can enter into the ocean, affecting coral reef communities and other marine life (18, 19). When large algal blooms occur as a result of nutrient pollution, oxygen in the water is consumed as the algae decompose, creating “dead zones” with little to no oxygen left for fish or other aquatic life (5).

Artisanal fishers and aquaculture: Many coastal seafood farms, including producers of oysters and shellfish, have been periodically closed due to large “red tides,” algal blooms often resulting from excessive upstream nutrients that make mussels, clams, and oysters toxic to humans and other mammals (10). For the 10–12% of the global population that depends on fisheries and aquaculture for their livelihoods, 90% of whom are small, artisanal fishers, algal blooms can be particularly devastating (11). Artisanal fishing by individuals, households, and small cooperatives comprises more than half of the world’s marine and inland fish catch, nearly all of which is for direct human consumption (1).

Rural households, farmers, and smallholders: One study found that if sediment and excessive nutrients were reduced by 10% through source water protection of 4,000 city catchments across the globe, up to 28 million farming households (for sediment) and 89 million households (for nutrients) could participate in best management practices, with potential improvements in crop production, reduced farming costs, increased community resilience, and other benefits to well-being. (1). Clean water for livestock reduces disease, and actions to protect and restore forests, agroforests, and other ecosystems for water-related benefits could simultaneously protect critical pollination services (19, 1, 13).

Urban households: Source water protection can improve the lives of the 4.4 billion people who live in cities (26). The poorest people may gain the most from water quality and quantity improvements, especially where they lack access to improved water sources and are food insecure (1). Globally, 80% of downstream individuals receive water from upstream protected areas under high threat, and no continent has less than 59% of its downstream users receiving water from such threatened areas (17).

Cost is another factor impacting urban consumers of water. In one out of three large cities around the world, costs per unit of treated water have increased by roughly 50% on average over the last century because of changes to how land is used, like urban development (21). Both sediment and nutrient pollution can generate additional costs to deliver water. High sediment concentration generates more wastewater and sludge requiring costly treatment, removal, and transport (19). Higher nutrient concentrations are associated with a greater frequency and intensity of algal blooms and higher organic matter content, requiring more expense to remove unwanted colors, odors, and waste from water (19).

What are the geographic attributes of those who are affected?

A 2014 analysis suggested that natural infrastructure in the form of forest and grasslands comprises the largest proportion of areas providing water to cities (19). (By population, however, influenced primarily by large cities in China and India, more people get water from predominantly agricultural areas.) (19)

Forest loss continues around the globe. Between 2000 and 2010, Brazil had the second-highest gross forest loss of all countries globally, though Brazil’s rate of forest loss had also declined the most over that period (16). Other countries, including Malaysia, Cambodia, Cote d’Ivoire, Tanzania, Argentina, and Paraguay, had experienced a greater percentage loss of forest cover (16). Of all countries globally, Indonesia experienced the largest increase in forest loss over the first decade of the century (16).

In most high-income countries and in many emerging economies, agricultural pollution has already overtaken contamination from settlements and industry as the major factor underlying the degradation of inland and coastal waters (20). In the United States, agriculture is the main source of pollution in rivers and streams, the second main source in wetlands, and the third main source in lakes (27). In China, agriculture is responsible for a large share of surface-water pollution and is responsible almost exclusively for groundwater pollution by nitrogen (7). By 2030, fertilizer use is forecast to increase by 58% globally; the cities that will likely face the biggest future increases in nutrient loading from agriculture are in Brazil, Argentina, and parts of sub-Saharan Africa (19).

Contribution

Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

If present trends continue, land use changes in source catchments, especially increasing area under agricultural cultivation and increasing fertilizer use, will continue to increase sediment loading and nutrient pollution (19). Water utilities are investing USD 90 billion each year in water supply infrastructure to deliver clean water to their customers.

However, protecting water at its source can be cheaper and more efficient than treating water after it has already been polluted (19). Reforesting just 2% of the recharge area of a reservoir can generate savings of USD 80 million in water turbidity treatment alone (9). In three Brazilian watersheds (Cantareira–São Paulo, Guandu–Rio de Janeiro, and São Bento do Sul–Santa Catarina), forest restoration reduced the accumulation of settled sediment, thereby decreasing turbidity levels and providing cleaner water (9, 15). The WRI analysis of the Cantareira–São Paulo basin found that targeting 4,000 ha of pasture for forest restoration would avoid $106 million in sediment management costs over 30 years, largely stemming from water treatment costs – reducing turbidity at the water treatment plant could result in a 14% annual savings (9).

Besides protecting or restoring the natural resources that underpin water supplies (catchments, rivers, wetlands, and aquifers), investments can also ensure that any existing or additional agricultural lands utilize best management practices (14).

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

Source water protection can reduce sediment pollution in at least 70% of the area encompassed by likely urban source catchments across Africa, Asia, Latin America, and Europe (1). The potential for nutrient pollution reduction is strong in Asia, Europe, North America, and Oceania, where more than 60% of catchment areas can benefit from nature-based solutions (1). Investments in natural infrastructure are evaluated on their ability to achieve two water-management objectives: reducing sediment management costs and securing water flows, considering climate change scenarios (9, 15).

Two-thirds of those living in the world’s 100 largest cities—nearly 500 million people—get their drinking water from surface sources with a high level of sediment yield (19). More than 384 million city dwellers around the world drink water from catchments with high nutrient pollution (19).

Well-designed source water-protection activities can mitigate and minimize threats to native species, contributing to the conservation of large numbers of species, some of which may represent critical conservation opportunities (1). The risk of regional extinctions for 5,408 species would be reduced if reforestation opportunities were fully implemented within the likely source catchments of 4,000 cities around the world (1).

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

Nature-based solutions can mitigate future development risk and restore important ecosystem services (1). The change resulting from investments in source water protection will depend on the range of land use practices currently affecting water quality in the catchment and the duration of the commitment to source water protection. More than half of the urban source catchments in North America could achieve at least a 10% reduction in sediment (1). Source water protection could mitigate nutrient inputs for more than 200 of the 762 globally reported coastal eutrophication and dead zones (1).

One study of the world’s largest 550 cities found that:

  • agricultural best practices could reduce phosphorous by 10% in 347 of the cities,
  • forest protection could reduce sediment by 10% in 264 cities,
  • reforestation could reduce phosphorous by 10% in 247 cities,
  • forest fuel reduction could reduce sediment by 10% in 71 cities, and
  • riparian restoration could reduce sediment by 10% in 63 cities. (19).

Since 10% reductions in sediment and nutrients also reduce water-treatment plant operational and maintenance costs by roughly 5%, protecting or restoring natural infrastructure in catchments could save USD 890 million per year in treatment plant operational and maintenance costs (19).

Nature-based solutions cannot address all water quality problems; continued improvements to sanitation and access to improved water sources and reduced point sources of toxins and other contaminants are critical (1).

Risk

Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

Investors working to improve water quality via source water protection may consider the following impact risks: 

  • Execution Risk: Water issues and risks vary by climate, geography, geology, population density, level of industrial and agricultural development, and maturity of water governance and regulation (25). Relationships involving water can be complex, with inter-basin and inter-catchment linkages, especially for users who draw water from multiple sources. Some of the possible execution risks include: (1) the scale of an individual investment may be too small to create meaningful improvements to water quality; (2) the timing required for measurable improvement of water quality (15 years or more in some cases) may not match investment expectations; (3) in a particular catchment, an investment under this strategy may prove impossible or nonviable in the parts of a catchment with the greatest water quality problems; and (4) since protecting catchment often requires working with many landowners, transaction costs can become prohibitive (19). Investors can mitigate these risks by using hydrological models to understand how water behaves and moves in the environment for each investment site, as risks and estimated return will vary with hydrology (25).

  • Evidence Risk: The availability of publicly accessible data and information on water varies enormously around the world, which can make it difficult to monitor and evaluate impact (25). Investors can improve their understanding of an investment area’s catchment and aquifer recharge areas by collecting and analyzing scientific data about source lands, landownership, growth and development patterns, and the health of catchment lands, using maps and models to prioritize protection (19). Parcels of land with steep slopes and erodible soils, in forest or other natural cover, and close to a waterway or encompassing small streams are the most critical to protect; development on these sites is more likely to degrade water quality (19).

  • Efficiency Risk: The multiplicity of benefits derived from land use–based solutions and natural infrastructure increases the chances of mobilizing resources, but it also makes it more challenging to establish a reliable, replicable payment model (19). Multiple institutions may need to be engaged to secure required access and resources, and revenue models designed to fit particular local circumstances can be hard to replicate elsewhere (19).

  • Drop-Off Risk: Investments face various drop-off risks. Changes to land use outside the investment area could override positive impacts from the investment. Also, land-use history—the “ghosts of land use past”—in a particular catchment could override current restoration or protection activities. Next, climate change could create new conditions under which planned models or scenarios no longer work. Finally, the necessary maintenance or oversight of the natural infrastructure in a catchment could be discontinued or unsustainable. For example, active enforcement might be required to protect an area or ensure continued adherence to best management practices on working lands. To increase the likelihood that source water protection activities achieve their potential for biodiversity conservation, investors should obtain the best possible information on species’ locations, habitat requirements, and threats. Investors should also consider the vulnerability of the supply of targeted environmental services to climate change (1).

What are likely consequences of these impact risk factors?

In general, and for largely uncontrollable reasons, these risk factors could reduce or eliminate the intended reduction in sediment or nutrient pollution, although other benefits might still occur, such as climate change mitigation, biodiversity conservation, and livelihood improvements.

Illustrative Investment

The Forest Resilience Bond, developed by Blue Forest Conservation in partnership with the World Resources Institute, raises capital to finance forest restoration to reduce the risk of severe fire (28). The Forest Resilience Bond concept leverages private capital to provide bridge financing for forest restoration work that the U.S. Forest Service cannot currently afford to do. Most beneficiaries currently pay nothing but also face the risk of large expenses if a catastrophic fire were to occur. Through the Forest Resilience Bond pilot, the Yuba Water Agency and the state of California will each pay for part of the cost of doing restoration work—reducing the likelihood of a catastrophic wildfire.
In the pilot, USD 4 million in private capital from the Rockefeller Foundation, the Gordon & Betty Moore Foundation, Calvert Impact Capital, and CSAA Insurance Group funded the upfront costs of forest restoration, protecting 15,000 acres of forestland in the North Yuba River watershed using ecologically based tree thinning, meadow restoration, prescribed burning, and invasive species management designed to reduce the risk of fire, improve watershed health, and protect water resources. Multiple beneficiaries will share in the cost of reimbursing investors over time: Yuba Water Agency, a water utility, committed USD 1.5 million over five years, the State of California committed USD 2.6 million in grant funding from the state’s Climate Change Investment program, and Tahoe National Forest provides in-kind support and services, including all the resources associated with planning and permitting the project.

In 2011, the local government of São Bento do Sul municipality, in partnership with the city sanitation company, SAMAE (Serviço Autônomo de Água e Esgoto) and Boticário Group Foundation, launched the Rio Vermelho (Red River) Water Producers program (15). In an effort to find nature-based solutions to assure water quality and quantity, SAMAE invested BRL 35,000 per year in the rural catchment area to maintain the conservation of natural resources and promote best practices in land use. The program includes a Payment for Ecosystem Services (PES) Committee to carry out the action plan, comprising local governments, universities, NGOs, and sanitation company representatives. A modeling study evaluated priority areas for expanding this program and found that conserving an additional 1,620 hectares through the PES and restoring 3,239 hectares of degraded pasture would reduce 54% of the sediment load and cut water treatment costs by 13–26%.

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

NESTA: 3
Freshwater protected areas: strategies for conservation

Saunders, D. L., J. J. Meeuwig, and A. C. J. Vincent. “Freshwater protected areas: strategies for conservation.” Conservation Biology 16, no. 1 (2002): 30-41.

NESTA: 3
The environmental benefits of water recycling and reuse

Anderson, John. “The environmental benefits of water recycling and reuse.” Water Science and Technology: Water Supply 3, no. 4 (2003): 1-10.

NESTA: 3
The Environmental Benefits of Water Recycling and Reuse Anderson, John. "The environmental benefits of water recycling and reuse." Water Science and Technology: Water Supply 3, no. 4 (2003): 1-10.
NESTA: 3
Upstream watershed condition predicts rural children's health across 35 developing countries Herrera, Diego, Alicia Ellis, Brendan Fisher, Christopher D. Golden, Kiersten Johnson, Mark Mulligan, Alexander Pfaff, Timothy Treuer, and Taylor H. Ricketts. "Upstream watershed condition predicts rural children’s health across 35 developing countries." Nature communications 8, no. 1 (2017): 811.
NESTA: 2
A common-pool resource approach for water quality management: An Australian case study

Sarker, Ashutosh, Helen Ross, and Krishna K. Shrestha. “A common-pool resource approach for water quality management: An Australian case study.” Ecological economics 68, no. 1-2 (2008): 461-471.

NESTA: 2
Multiple stressors in freshwater ecosystems

Ormerod, Steve J., Michael Dobson, Alan G. Hildrew, and CR2010 Townsend. “Multiple stressors in freshwater ecosystems.” Freshwater Biology 55 (2010): 1-4.

NESTA: 2
Reefs at risk revisited: a map-based indicator of threats to the world's coral reefs

Bryant, Dirk, Lauretta Burke, John McManus, and Mark Spalding. “Reefs at risk: a map-based indicator of threats to the worlds coral reefs.” (1998).

NESTA: 2
The effects of terrestrial runoff of sediments, nutrients and other pollutants on coral reefs

International Society for Reef Study (ISRS). “The effects of terrestrial runoff of sediments, nutrients and other pollutants on coral reefs.” (2004).

NESTA: 1
Case Studies of Markets and Innovative Finance Mechanisms for Water Services from Forests.

Perrot-Maitre, Daniele, and Patsy Davis. May 2001. Case Studies of Markets and Innovative Finance Mechanisms for Water Services from Forests. Forest Trends.

NESTA: 1
Developing Markets for Water Services from Forests: Issues and Lessons for Innovators.

Johnson, Nels, Andy White, and Daniele Perrot-Maitre. undated. Developing Markets for Water Services from Forests: Issues and Lessons for Innovators. USA: Forest Trends

NESTA: 1
Effects of sedimentation on coral settlement and survivorship.

Babcock, R., and L. Smith. “Effects of sedimentation on coral settlement and survivorship.” In Proceedings of the Ninth International Coral Reef Symposium, Bali, 23-27 October 2000,, vol. 1, pp. 245-248. 2002.

NESTA: 1
Managing water for people and nature

Johnson, Nels, Carmen Revenga, and Jaime Echeverria. “Managing water for people and nature.” Science 292, no. 5519 (2001): 1071-1072.

NESTA: 1
Nutrient enrichment can increase the severity of coral diseases

Bruno, John F., Laura E. Petes, C. Drew Harvell, and Annaliese Hettinger. “Nutrient enrichment can increase the severity of coral diseases.” Ecology letters 6, no. 12 (2003): 1056-1061.

NESTA: 1
Spreading dead zones and consequences for marine ecosystems

Diaz, Robert J., and Rutger Rosenberg. “Spreading dead zones and consequences for marine ecosystems.” science 321, no. 5891 (2008): 926-929.

NESTA: 1
A Common-Pool Resource Approach for Water Quality Management: An Australian Case Study Sarker, Ashutosh, Helen Ross, and Krishna K. Shrestha. "A common-pool resource approach for water quality management: An Australian case study." Ecological economics 68, no. 1-2 (2008): 461-471.
NESTA: 1
Developing Markets for Water Services from Forests: Issues and Lessons for Innovators Johnson, Nels, Andy White, and Daniele Perrot-Maitre. undated. Developing Markets for Water Services from Forests: Issues and Lessons for Innovators. USA: Forest Trends
NESTA: 1
Implementing Improvements in Water Quality and Protecting Ecosystem Services UN-Water Decade Programme on Advocacy and Communication (UNW-DPAC). "Implementing improvements in water quality and protecting ecosystem services." https://www.un.org/waterforlifedecade/waterandsustainabledevelopment2015/images/water_quality_eng.pdf
NESTA: 1
The Role of Headwater Streams in Downstream Water Quality Alexander, Richard B., Elizabeth W. Boyer, Richard A. Smith, Gregory E. Schwarz, and Richard B. Moore. "The role of headwater streams in downstream water quality 1." JAWRA Journal of the American Water Resources Association 43, no. 1 (2007): 41-59.
NESTA: 1
Upstream water resource management to address downstream pollution concerns: A policy framework with application to the Nakdong River basin in South Korea Yoon, Taeyeon, Charles Rhodes, and Farhed A. Shah. "Upstream water resource management to address downstream pollution concerns: A policy framework with application to the N akdong R iver basin in S outh K orea." Water Resources Research 51, no. 2 (2015): 787-805.
NESTA: 1
Watershed Management for Source Water Protection Committee to Review the New York City Watershed Management Strategy. "Watershed management for potable water supply: Assessing the New York city strategy." (2000).

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.