In Ecuador, an innovative financing tool secures water supplies

Source(s): United Nations Environment Programme

Ecuador houses two incredible ecosystems that support the country’s clean freshwater supply: cloud forests and alpine grasslands. These sponge-like ecosystems absorb moisture from glacial snowmelt and low-level fog, filtering pollutants and regulating the outward flow of water.  

However, climate change, deforestation and construction diminish the natural ability of cloud forests and grasslands to supply clean water. The standard solution is to solve the problem by building more infrastructure, including water purification plants. But while purification plants do indeed filter and clean the water, they don’t solve the root problem of protecting the entire watershed. They also contribute to the very challenge they’re intended to resolve.

And so, Ecuador is trying a more innovative approach: water funds.

Ecuador’s efforts represent a particularly compelling example of investing in natural infrastructure.

Leo Heileman, UNEP

Taking financial creativity to the next level, independent trust managers are investing the payments from water and other utility bills into financial markets. They then dispense the profits from those markets to indigenous groups, municipal authorities, private companies and non-governmental organizations, funding conservation and watershed management with a focus on natural landscapes.

“Ecuador’s efforts represent a particularly compelling example of investing in natural infrastructure,” said Leo Heileman, UNEP’s director for Latin America and the Caribbean. “Here we are seeing that quality infrastructure services can be delivered at scale by prioritizing conservation and ecosystem restoration, with a sharp focus on local priorities and financial sustainability at the same time.”

During a time when COVID-19 is straining government budgets, these funds offer a way to secure clean water supplies to cities of all sizes. Water funds have been successful enough across Ecuador that they are currently being replicated in other Latin American countries.

For years, Ecuador’s freshwater supply, particularly in the capital of Quito, was threatened by development and land degradation, despite restrictions for watershed protection. The city of Quito established Ecuador’s first water fund in the early 2000s, according to a case study that accompanied a recent UNEP report International Good Practice Principles for Sustainable Infrastructure. The fund invested in nature-based solutions, helping to conserve and manage surrounding watersheds.

Return on Investment

UNEP found that over a 20-year period, the Quito Water Fund helped reduce erosion around water sources and cut the pollutants in drinking water. When comparing the estimated cost of conservation over 20 years, water funds received a return on investment of US$2.15 for each $1.00 invested.

Other water funds followed suit in Cuenca, Guayaquil, and in the middle and southern regions of the country. Some projects included replanting native vegetation species, purchasing land for conservation and installing fencing that prevents livestock from sullying waterways.

Meanwhile, the Regional Water Fund in southern Ecuador established more than 174,000 acres of municipal reserves, protecting and restoring watersheds that supply water for 432,000 people during a period of five years.

Nature-positive solutions

Post-pandemic stimulus and recovery offer opportunities for countries to invest in sustainable, nature-positive solutions. UNEP’s International Good Practice Principles for Sustainable Infrastructure provide guidance to policy makers on ways to prioritize nature-based solutions in the early planning phases of infrastructure development to engender environmental, social and economic sustainability.  

In addition, the United Nations General Assembly has declared the years 2021 through 2030 the UN Decade on Ecosystem Restoration. Led by UNEP and the Food and Agriculture Organization, the UN Decade is designed to prevent, halt and reverse the degradation of ecosystems worldwide. The UN Decade will draw together political support, scientific research and innovative financing mechanisms, such as Ecuador’s water funds, to scale up restoration of land and marine ecosystems.


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