Sustainable Sourcewater

Water funds are now being used in dozens of cities around the world to help secure clean water for the future. A fund works by channeling investments from municipalities, industry, and other downstream users into upstream, rural and agricultural communities to incentivize activities likely to improve water quality. But figuring out where and how much to invest, and in which activities is difficult. It is also challenging to know if investments are making water cleaner and improving lives. NatCap’s RIOS software, monitoring guidance, and training program make designing effective water funds easier by bringing science and experience to the table.



The Challenge

As rainfall patterns alter with climate change, and human population numbers and demands increase across the planet, water resources are in short supply. Dozens of cities around the world are attempting to secure water for the future by creating water funds. But knowing where to invest, how much, and in which activities is difficult–as is knowing if, in the long run, investments made a difference.

Using a NatCap Approach

NatCap has worked closely with waterfund decision-makers to design software, monitoring guidance and training programs that make water fund decisions easier.


RIOS (Resource Investment Optimization System), can reveal how to target investments to achieve up to six times better results than in waterfunds designed without this analysis.

The Challenge

Water shortages are hitting major cities throughout the world. The demand for clean water is swelling with population levels, while climate change is making rainfall more variable. Deforestation and development in sensitive upstream areas threaten water quality for downstream users.

In vulnerable places, once trees are cut and sediment or agricultural run-off washes into the water supply, many communities cannot afford to build expensive treatment plants, and will end up drinking or otherwise using dirty water.

Water funds are financing mechanisms based on the premise that it is cheaper and easier to prevent water problems at the source than to address them later. The water funds approach also allows for other benefits, such as preserving cultural heritage, recreation and tourism, scenic beauty, wildlife habitat, and improved livelihoods and well-being of upstream communities.

New York City first invested in its Catskills watershed in the 1990s, securing clean water for millions of people. NatCap’s founding partner TNC, in collaboration with the Latin America Water Funds Partnership, is replicating early efforts in the watersheds of dozens of cities throughout Latin America, in the US, and now into Africa and Asia. But taking a water fund from the idea stage to implementation involves first identifying, and then answering many complicated questions about when and how ecosystems can help.


NatCap’s tools for hydrologic ecosystem services modeling in the InVEST suite and RIOS have been used in the framework of Water Funds projects from Rio Grande to Patagonia. These tools allow us to clearly explain the current conservation condition of watersheds, what needs to be improved, and what we as society can achieve if we invest in nature. These tools speak the universal language of science and help us to connect local scientists and communities with simple yet powerful information that facilitates collaboration to design  the future watersheds we need.

Jorge Leon Sarmiento

Latin America Water Funds Specialist, The Nature Conservancy

Using a Natural Capital Approach

By working closely with TNC, other partners, and local leaders interested in water funds, The Natural Capital Project developed solutions that addressed common questions arising across projects. For example:

  • What economic return on investment can we expect downstream, when upstream landowners engage in activities to protect their watersheds?
  • What evidence can we provide to investors to show the links between activities of upstream communities and downstream water supplies?
  • How much erosion control and improvement to downstream sediment levels can be expected through restoring vegetation in particular places?
  • Are different land- and water-use activities more appropriate, and more cost effective, in different places? If so, how can we figure out what to do where?

Guided by the questions of water fund developers, NatCap created a decision-support approach and open source software tools that are now helping investors and planners figure out where to encourage investment in specific activities to achieve the greatest water quality improvements.

The resulting software, RIOS (Resource Investment Optimization System), processes complex biophysical data about where ecosystem functions are stemming from by tracking things like nutrient and sediment retention, water flow patterns, and biodiversity. RIOS then combines that information with social and economic data such as land-ownership information, the cost of different types of restoration activities, and the feasibility of land conservation. The analysis helps identify places and activities for targeted investments that will produce the highest returns in water quality for a specified budget.

RIOS also helps decision-makers decide: Which set of investments (in which activities, and where) will yield the greatest returns toward multiple objectives? Objectives vary from city to city, are decided by stakeholders, and include things people care about like erosion control, poverty alleviation, crop yields, wildlife preservation, and carbon sequestration.



RIOS software helps water fund planners and investors target investments in the highest priority areas and activities. Modeled clean water returns to cities using this science-based software are up to six times better than the case where investments are not guided by RIOS. Watershed managers and fund investors now have a decision-support mechanism to both ask and answer questions about where, and in what activities, to encourage investment. RIOS currently is being used to help plan the restoration of 7 million acres of critical lands in watersheds.

Now several cities in Africa are considering creating water funds and are using RIOS as a scoping tool to see whether this approach could help deliver clean water solutions. In Nairobi, NatCap scientists ran a RIOS analysis and, with additional hydrology and economic analyses, estimated that a $10 million investment in conservation interventions is projected to return  benefits worth $21 million over 30 years.

Ultimately, through collaboration with people and organizations on the ground, we learned what critical questions are facing those trying to set up water funds, and co-developed tools and solutions for them. By developing general approaches and free and open-source tools with decision-makers, our aim is to empower people around the world to make more informed decisions for people and the planet.