Product, Service & Design Innovation
Banks Now Realizing Importance and Potential for Water Investments

According to the World Economic Forum, water scarcity ranks first among all long-term risks worldwide. Australia, Brazil and the United States are only a few examples of where droughts have affected everything from agriculture, hydropower and those everyday tasks most of take for granted. California’s annual snowpack this year was only 12 percent of normal — which has had a huge impact on the state’s skiing industry as well as its growing dairy sector. Finding solutions has proven to be a political minefield.

Meanwhile more businesses are starting to grasp the impact that the global water crises will have on their businesses, especially the financial sector. Recent announcements by both Wells Fargo and Bank of America indicate that banks are starting to take a larger interest in the threats that global water shortages will long have on society and the global economy.

Wells Fargo recently announced a grant of US$1 million to Imagine H2O, a northern California non-profit that manages an annual water technology competition. Bank of America has given the same amount to Water.org, another non-profit that uses market-based approaches, such as microloans, which offer citizens in the developing world access to safe and clean water supplies. What these banks have done is more than just cutting a check for a charity; they are steps more financial institutions will have to take if they are going to protect their business in the long term.

Considering the scope of Wells Fargo’s business, an emphasis on water within the company’s philanthropic division, as well as defining this precious resource as central its business strategy, is a no-brainer.

“We’re in a unique position as the country’s number one commercial real estate lender, the number one agriculture lender, and the leading energy lender,” Ashley Grosh, a Wells Fargo vice president and the company’s environmental affairs business initiatives manager, tells Sustainable Brands. “We have built a strong relationship with many of these organizations, including Imagine H2O, and realized the immediate thing we can be doing related to water was putting our resources on scalable technologies.”

And it is this focus on water technologies that are among the many initiatives that have kept Grosh and her team at Wells Fargo preoccupied since the company revamped its environmental goals in 2012. Among the bank’s many objectives, it had pledged to invest and lend US$30 billion towards environmental technologies by 2020; in a recent interim corporate responsibility report, the bank says it has already exceeded that goal with $US37 billion in such commitments. Imagine H2O is just one of many organizations and universities with which the company partners.

"What I’ve started to notice is that as we’ve been working with universities on technology grants and competitions,” says Grosh, “is that the water technologies are often winning these competitions.”

As politicians in Sacramento and Washington, DC, bicker over how to cope with water scarcity, researchers, business leaders and entrepreneurs are stepping up and filling in the void.

By working with several universities in California alone, Grosh says, “We are learning about what tools are needed to prepare farmers for the ‘new normal.’ How can we help them adjust their entire operations to do more with less?”

Grosh explained further that observations of what is going on at the university level can give the company an idea of which water technologies are ripe for investment, and then can be taken to the next level, by an organization such as Imagine H2O. The big question, however, is whether new irrigation methods, desalination, water-filtration technologies and smartphone apps will be enough to help California and other regions cope with what could be a long-term drought crisis. In the meantime, Wells Fargo sees plentiful opportunities to be an engaged investor and corporate citizen as more entrepreneurs in regions such as Silicon Valley flock from smartphones to smarter water systems.

Bank of America, long keen on investing in renewable energy technologies, is also showing more interest in water technologies. The company’s most recent large grant has a different approach from that of its competitors’: Instead of focusing on where it does business, the company has its eyes set on areas that are often the base of its customers’ supply chains. In the case of B of A, it has given US$1 million to Water.org, which will use the funds for microfinance programs in India. The NGO, co-founded by Matt Damon, has found resounding success with its WaterCredit program. In nine countries, the program has offered over 500,000 microloans that have allowed citizens financing for anything from access to municipal water systems to opening clean and safe public toilets.

According to Rosemary Gudelj, Water.org’s senior manager of public affairs, the NGO’s relationship with Bank of America has long evolved from when Water.org was at first simply one of its banking customers.

“WaterCredit was starting to really take off in India — a market of interest to Bank of America for multiple reasons — demonstrating the tremendous potential behind enhancing financial inclusion at the base of the economic pyramid for water supply and sanitation needs,” says Gudelj.

The potential for the program’s scale in India was clear, and the Bank of America Foundation became interested in expanding its efforts on the country’s water resources and environmental fronts. The bank first committed to $US405,000 in financing, and then recently provided an additional boost with the million-dollar grant.

This program, however, is simply not about doing well for people in need at the bottom of the pyramid (or BOP, the largest, and poorest, global social economic group, totaling approximately 3 billion people). According to Gudelj, this is a huge market because there is as much as a US$12 billion demand among families within the BOP for access to microfinance to meet their water supply and sanitation needs — even if their average salary is less than US$2.50 a day. Water.org’s WaterCredit business model strives to tap into this demand, and enable local microfinance institutions (MFIs) to provide small and affordable loans to families for their daily water and sanitation needs, empowering them as customers along the way.

The financial and social impacts of Water.org’s programs have been exponential in scale. Gudelj noted that Water.org has directed US$10.9 million in philanthropic capital toward its 51 microfinance partners in order to help them launch WaterCredit loan portfolios. Over time, those organizations have attracted more than US$100 million in commercial and social investment capital to provide such loans. “That’s US$100 million Water.org did not need to fundraise from philanthropic supporters, leaving those purely charitable dollars for those living in abject poverty,” says Gudelj.

The results have produced extensive ripple effects. As WaterCredit loans are repaid, that funding is recycled to provide loans to additional families in need. This means that over a 10-year period, philanthropic contributions such as B of A’s can reach five times as many people as a traditional grant over that same time period. And as percentage figures go, banks cannot argue with the statistics: Globally, WaterCredit loans have a repayment rate of 99 percent.

While many of us have an impression of banks as a cold, rigid and even exploitative business, Gudelj offers a different point of view.

“Banks understand the benefit of empowering people economically,” she says, “and financial inclusion at the Base of the Economic Pyramid has the effect of stimulating the local and then global economy.”

One of the crucial benefits of having access to water is freedom from spending hours searching for water, and then carrying enough of it to sustain one’s family. That person (usually a woman), who has been empowered to free herself of that daily burden is now often employed, working, making money, and both spending and saving money. She has become a potential customer for a bank, or one of the bank’s customers, where they can save for their futures, and that of their children. Hence, banks have a huge opportunity to provide social good, while stabilizing their business for the long haul.