Title page 1

Contents 7

Preface 4

Foreword 5

Acknowledgements 6

Executive summary 10

1. Context: Challenges to effective investment in water 12

1.1. Definitions and scope of the report 13

1.2. Do water-related investments and financing models deliver lasting value? 13

1.2.1. Water-related investments, a key driver of water security and economic development 13

1.2.2. Challenges to effective long-term investment in water 14

1.3. Can financing models and approaches help strengthen the viability and effectiveness of water investments? 16

References 19

Notes 21

2. Leveraging bond finance for water investments 22

2.1. What is bond financing for water? 23

2.1.1. Definitions 24

2.1.2. The case for scaling up bond finance for water 26

2.2. Recent trends in bond finance for water 27

2.2.1. Global trends 27

2.2.2. Breakdown of bond issuance by region and issuer type 30

2.2.3. Breakdown of issuance by country and main issuers 34

2.3. Opportunities to scale up bond finance for impactful water investments 39

2.3.1. Guidance, frameworks and standards for water/blue bonds 39

2.3.2. Growing investor demand for green and water-related bonds 42

2.3.3. Type of investors 42

2.3.4. Innovative bonds instruments 45

References 48

Notes 52

3. Mobilising Islamic finance for water investments 54

3.1. Latest trends in Islamic finance for water 56

3.1.1. Islamic finance by regions, types of assets and sectors 56

3.1.2. Islamic finance and its potential for impact-driven investment 58

3.1.3. Islamic finance for water: state of play 61

3.2. Promising financing instruments to scale up Islamic finance for water 65

3.2.1. Green sukuk 66

3.2.2. Public-Private Partnerships (PPPs) and parallel financing 70

3.2.3. Islamic social finance and philanthropy 73

3.2.4. Islamic blended finance 77

3.3. Ways forward to leverage Islamic Finance for effective water investments 79

3.3.1. Main challenges to scale up Islamic finance for water 79

3.3.2. Opportunities to unlock Shariah-compliant funding and financing models for water at scale 82

3.3.3. Islamic finance: a source of inspiration for improving the long-term viability and quality of financing water? 86

References 88

Notes 95

4. Results-based finance (RBF) in the water sector: Use, rationale and conditions for success 99

4.1. Introduction 100

4.2. How is results-based finance applied in the water sector 101

4.2.1. RBF for a range of outcomes, with an emerging focus on services' performance 101

4.2.2. RBF embedded in grants and repayable finance to shift some risks onto implementers 104

4.3. Results-based finance as a lever of change 107

4.3.1. RBF to disrupt business as usual 107

4.3.2. Internal organisational development and policy reforms 108

4.3.3. Higher standards of service levels 109

4.3.4. Adoption of green and environmentally friendly infrastructure 111

4.4. Making results-based finance work: conditions for success 112

4.4.1. Project preparation: consulting and building on experience 112

4.4.2. Providing technical assistance where needed 112

4.4.3. Addressing risks of perverse incentives in results-based grants 113

4.4.4. Strengthening the results verification process 113

4.5. Opportunities to scale up RBF for water investments 115

References 116

Notes 117

5. Revisiting public-private partnerships (PPPs) for water and sanitation: Balancing risks, focusing on results 118

5.1. Introduction 119

5.2. Public-Private Partnerships structured for durable services 122

5.2.1. A focus on efficient and viable services with measurable results 122

5.2.2. Structuring PPPs to incentivise results' achievements 125

5.2.3. Shifting risks and accepting trade-offs 126

5.3. Enabling conditions for balanced PPPs 129

5.3.1. Enabling policies and regulations 129

5.3.2. Strong public sector: from project preparation skills to contract monitoring and regulation 131

5.3.3. Stakeholder engagement 131

5.3.4. Readiness to deploy blended finance 132

5.3.5. Robust private sector 133

5.4. Opportunities to scale up PPPs for water-related investments 133

References 134

Notes 135

6. Summary of key findings and policy recommendations 136

6.1. Leveraging bond finance for water investments 137

6.1.1. Policy recommendations 137

6.2. Mobilising Islamic Finance for water investments 140

6.2.1. Policy recommendations 140

6.3. Deploying results-based finance in the water sector: use, rationale and conditions for success 142

6.3.1. Policy recommendations 143

6.4. Revisiting public-private partnerships for water and sanitation: balancing risks, focusing on results 144

6.4.1. Policy recommendations 144

References 146

Notes 146

Annex A. Scopes of the datasets and methodology 147

References 148

Table 1.1. Main types of instruments reviewed and recommendations for enhancing long-term impact (selected) 17

Table 2.1. GSS bonds' use of proceeds, 2014-2023 29

Table 2.2. Global Blue/Water labelled bond issuance by issuer, 2023 and 2024 [Original labels] 36

Table 3.1. Breakdown of the global Islamic finance industry by region and type of assets, USD billion, 2023 57

Table 3.2. Principles and key attributes of Islamic finance 59

Table 4.1. RBF projects and initiatives related to water and sanitation discussed in this chapter 102

Table 4.2. Results achieved under Phase 1 the Egypt PforR (2015-2023) 109

Table 5.1. PPP contracts type, duration and scope of service 123

Table 5.2. PPPs' remuneration structure 125

Table 5.3. Illustrative risk levels of different PPP transactions from the private sector perspective 127

Table 5.4. Reforms introduced with the new sanitation law in Brazil 130

Table 5.5. Blended finance modalities deployed through selected PPPs 132

Boxes 9

Box 2.1. Methodology for the data analysis 24

Box 2.2. Meeting investors' demands: lessons from the National Water Board (NWB) Bank 44

Box 3.1. Air Selangor's issuance of Sukuk Kelestarian to finance water supply and water management projects in Malaysia 69

Box 3.2. PPP projects with an Islamic tranche in the water and related sectors 72

Box 3.3. Parallel financing for Qatar's desalination projects in Ras Abu Fontas 73

Box 3.4. BAZNAS: Institutionalising zakat to finance WASH services in Indonesia 76

Box 3.5. The Global Islamic Finance Programme (GIFP) 78

Box 4.1. What are Development Impact Bonds (DIB) and how they work 105

Box 4.2. The results-based element in the Environmental Impact Bond for stormwater management 107

Box 4.3. The government system's change under the rural sanitation programme in Egypt 109

Box 4.4. Aqua for All's contract to incentivise utility services' expansion in hard-to-reach areas 110

Box 4.5. Rewarding performance for higher service levels and the viability of services: Uduma and the Uptime Catalyst Facility 111

Box 4.6. Uptime data management system 114

Box 4.7. Role of digital technologies such as remote sensing & Earth Observation in monitoring results 115

Box 5.1. Scope of PPPs in this chapter 120

Box 5.2. Water efficiency measures in the concession contract between Métropole Européenne de Lille (MEL) and Veolia 124

Box 5.3. Remuneration under the India's Hybrid Annuity Model (HAM) for sewage treatment 126

Box 5.4. Brazil's 2020 New Sanitation Law - a market changer 129