• One of the agenda in the 27^th Conference of the Parties of the UNFCCC was to discuss on the critical question on climate finance.
• The COP negotiations can mark an important year for the Global South, given that these countries are the most vulnerable to climate change.
• According to the World Bank:
• India losses $9.8 billion each year as a result of extreme events.
• Floods cost 50 % of all damages.
• In 2020, floods led to damages of 0.15 % of India’s GDP. 
• One of the solutions to address such adverse impact of climate change is to take a collective approach such as the usage of water credits.

Water credit

• Water credits represents a fixed quantum of water that is conserved or generated and can be transacted between water deficit and water surplus entities within a sub-basin.
• Its concept is similar to carbon credits.
• However, the main difference is that for water credit the spatial limit of transaction should be within the same hydrological unit, that is, a river basin or watershed.

Example of usage of water credit

• Multiple industries can buy water credits from fund crunched municipalities.
• Finance large-scale floodwater harvesting or wastewater treatment projects
• Conserve freshwater resources at a city level
• Promote wastewater reuse.
• Innovation in adaptation finance to achieve water resilience.

Current challenges in climate funding (Need for water credit)

The current efforts for climate finance have many challenges which necessitate to act collectively for ‘net water positive’ outcomes through efforts like the usage of water credit. 

Challenge in Mobilising finances from both domestic and international source:

• Most of the international support is towards climate mitigation efforts rather than on adaption front. International support towards mitigation projects is weak and the modalities of financing mechanisms shifted from grants to loans.
• Use local financing opportunities for financing climate mitigation and adaption efforts.
  • Adaptation finance help communities reduce the risks they face and harm they might suffer from climate hazards like storms or droughts.
  • It provides for things like stronger housing, drought-tolerant crops, social safety nets, or improved decision-making related to climate-related risks.
• From the private sector, CSR allocations can be taken as adaptation finance.
• In a study by KPMG, in 2018-19, the top 100 companies in India spent around $1.06 billion towards CSR initiatives.
• In 2020, 20 % of the total funds were used in adaptation activities.

Challenge in CSR Funds:

• CSR funds is focused on developmental goals rather than climate adaptation.  
• CSR funds, that represent 3^rd largest pool of climate finance after government spending and multilateral financing, shows fragmented and ineffective.
• Example: Industrial sector is the second highest user of freshwater in India. To address the risk of decreasing water availability, the sector is investing CSR funds in watershed programmes.
• But most of the benefits of these initiatives remains local at the cost of other regions.
• For example, an increase in the local water table can encourage farmers in the region to take up intensive farming at the cost of downstream flows.

Looking ahead

• The adoption of water credits would require a multiplayer approach including regulatory players and local governance institutions as well as sustainability advocacy groups and industry leaders.
• There is need for innovation in adaptation finance to achieve water resilience.
• There is need to fundamentally re-evaluate our priorities towards climate change by striking a better balance between mitigation and adaptation efforts. 

Water credit is important for national-level adaptation goals and will help meeting country’s target against goal of 1.5⁰C when evaluated at Global Stocktake at COP28 in 2023. Also, this was an objective of the Glasgow-Sharm el-Sheikh work programme on the Global Goal on Adaptation. Channelling CSR funds effectively towards climate adaptation may provide a new source of climate finance.