Watershared Bank: Funding the conservation of water factories in the Tropical Andes

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Please briefly describe your Water ChangeMaker journey

Many rural and indigenous communities in Latin America depend on surface water for their water supply. However, these vital, water-producing ecosystems are increasingly affected by changes in land use and unsustainable agricultural practices, which directly impacts the livelihoods of local families. Reciprocal water agreements, also known as ‘Watershared’, is a simple, incentive-based conservation model that helps upstream forest owners and landowners to manage their forests and water resources sustainably for their own benefit as well as that of downstream users. Watershared changes behaviours with economic and non-economic incentives and builds local institutional capacity to manage natural resources. Since 2003, around 80 local Andean governments have adopted the Watershared model, which has helped over 10,000 upstream landowners conserve 400,000 hectares of ‘water factories’ and fix over 80 million tonnes of CO₂ in exchange for development projects approaching USD 1,400,000 per year in irrigation systems, fruit tree seedlings, beehives, solar panels, and more. Today, Natura has over 16 years of experience in improving and implementing this model, which has successfully expanded from Bolivia to the Tropical Andes.

Please describe the change that your initiative created and how was it achieved

Watershared Bank was led to conservation work by its innovative idea to open a financial business window using private funds to develop a repayable loan system for municipalities and/or local actors in Bolivia and then the Tropical Andes, to fund water conservation programmes in the region. The Watershared Bank programme was then created to lend start-up financial resources to municipalities that are interested in funding their forest conservation programmes and are willing to return the money borrowed at an interest rate of around 6–7 percent per year. The proposal suggests imitating loan schemes used by municipal authorities when they want to pave streets or build bridges. The financial system and the municipalities have a long-standing relationship with banks for grey infrastructure construction. But neither banks nor the municipalities lent money for the conservation of nature and ecosystem services, such as water sources. Watershared Bank offers loans to local actors to maintain green infrastructure or carry out environmental tasks. The loans are used to support families who conserve or restore ecosystems with incentives. In this way, the proposal is pioneering. There is already high demand from municipalities in Bolivia and we expect the same reception in the Tropical Andes.

How did your initiative help build resilience to climate change?

Watershared provides communities with a range of environmental, social and economic benefits. It is an innovative water governance model, helping the rural world with climate change adaptation and mitigation in the following ways: 1) It mitigates climate change by conserving water-providing forest ecosystems and preventing 80 million metric tonnes of carbon from being emitted into the atmosphere. 2) It promotes activities that help mitigate climate change, such as forest conservation and forestation, as well as productive diversification and conservation of water sources, to improve rural families’ climate adaptation and resilience. 3) It enables adaptation to climate change (a shift in local economies from agriculture that is vulnerable to climate change towards productive alternatives such as perennial fruit farming or honey production). Productive diversification is key for climate change adaptation and risk reduction. 4) Measures to conserve water sources are strongly linked to improving rural families’ adaptation to climate change. 5) It provides food security (by ensuring sufficient water for consumption and irrigation, building engineering works for water access and diversifying production systems).6) It improves human health (by improving water quality in ecosystems). 7) It provides sustainable funding for climate change mitigation and adaptation (water conservation funds are managed and financed by local governments).

What water-related decisions did your initiative influence or improve?

One of Watershared’s main focuses is establishing a local institutional framework for the conservation of water sources. This takes the form of a ‘water fund’ which is directed by the water service provider, the local government, the Natura Foundation and occasionally the irrigation associations. The main purpose of this fund is to conserve water sources for domestic use and irrigation. Over time, Watershared has managed to strengthen the capacities of these local actors and pass on the responsibility of managing and funding the conservation of their forests and water sources in their territories. Today, local actors fund up to 70 percent of the model’s operating costs, with the rest funded by philanthropic resources. The water bill’s civic contribution has strengthened many of these programmes, which have now been running for over 10 years in many municipalities in Bolivia and the Tropical Andes. The Watershared Bank model’s innovative approach has tested the commercial viability of this climate solution, and is proving that municipal governments are willing to take out loans from the financial/private system and pay 100 percent of costs for their ‘water factory’ conservation programmes.

What were some of the challenges faced and how were they overcome?

Water is a human right and is considered a gift from God. As such, asking citizens to pay for or contribute to financial resources through the water bill to maintain a gift from God is a challenge. Creating or identifying credible local institutions that are trusted by the population is a major part of the Watershared programme. This is not a simple task and requires trust between actors. A mechanism for governance and transparency must also be established, especially if the new institution is to manage public resources. The local fund or Watershared is managed by the water service provider and the local government, both of which decide on how to best invest resources. Expenses are subject to state control and accountability reports are written twice a year. Conservation and/or environmental pollution issues are usually tackled in two ways: passing prohibitive laws or establishing environmental education programmes. Conservation programmes are rarely developed based on incentives to change stakeholder behaviours. Watershared creates local institutions to bring about behaviour changes in basin management. We make reciprocal agreements on conservation or practical production changes with landowners to avoid deforestation and/or forest degradation.

In your view: Will the change that was created by your initiative continue?

There is a growing demand from municipalities for loans for the conservation of ecosystem services. The Watershared Bank’s innovation lies in its use of private funds to provide reimbursable loans to municipalities in the Tropical Andes, so that they can fund their conservation programmes. The first loans were granted in Bolivia and there is growing demand from Peru, Colombia and Ecuador. Through the Watershared Bank, municipalities create their own two-part water fund for building infrastructure for water access and conserving water sources. Each programme is structured so that the municipality can repay the initial costs of infrastructure construction and conservation within five years. Then the funds are replenished and the funding cycle continues for the next group of municipalities.

What did you learn during the initiative or after? And is it possible that others could learn from you?

There are major lessons to be learned from the Watershared model: institutions designed, funded and governed at the local level have the authority to effect change and create a long-term institutional culture. As a natural resource, water has the power to bring people together and align their decisions. In addition, the Watershared model: a) helps rural communities mitigate and adapt to climate change; b) works in different socio-economic, cultural and political contexts, highlighting its enormous potential to be replicated around the world; c) is an innovative way to give women a more active role in the conservation and management of natural resources; d) was once highly dependent on donors, but could become a business that does not require philanthropic funding, but rather a bank that provides loans for green projects.