Water Is Now a Risk. Is the Sector Ready?
- Kimberly Worsham
- 2 days ago
- 6 min read
Updated: 1 day ago
Moody’s has released its 2026 Outlook reports, highlighting sustainability and climate-event issues as key differentiators in the investment world for the new year. This blog will discuss the new analysis and what it means for the water sector.
About Moody’s
For those outside the finance world, let’s talk about what Moody’s is - a risk-assessment company that assigns credit ratings to countries, states, cities, regions, and corporations to help investors make better decisions about where to put their money. Basically, Moody's looks at all of the risks of a context - political, economic, social, environmental, etc. - and then ranks these contexts with ratings like AA, Ba, C, etc. The credit ratings scale is kind of like what we have in grade school - the better the grade, the better the investment is, and the less likely your investments will disappear.
Below is a chart of how their credit ratings look.
Water in Investment Outlooks
Something that stood out in the Outlook report for 2026 was how water became a central theme in their credit ratings. Similarly, one of Moody’s leaders was recently interviewed about its new outlook, explaining that water has become a larger factor in Moody’s credit rating assessments. In this interview, he talked about how disappointing the COPs have been at actually addressing the reality of climate change risks worldwide. He noted that countries are failing to reduce their carbon emissions and estimated a $2.7 trillion annual investment gap, about 1.8% of global GDP. That’s a lot of money that isn't being allocated where it needs to be, and he says the private sector will have to step in to support governments with this kind of financial burden, including decarbonizing supply chains (the places where the raw materials for final products come from).
In this conversation, he emphasized that water was a real investment risk. On the flip side, resilience efforts would create investment opportunities, such as wastewater recycling and increased wastewater treatment in low- and middle-income countries. There, governance structures make them less able to manage climate events when they happen. As a result, water management challenges make investment harder.
Water management for many corporate sectors, such as agriculture and data centers, will increase their risk of receiving worse credit ratings. Some sectors, like data centers, are going to have increasing scrutiny on their water-intensive cooling practices. Corporate and government investors have begun incorporating water efficiency into some of their investment eligibility criteria, including a group in Canada and one in Oman.
They mention that treaty negotiations that have not gone anywhere in COP, like maritime decarbonization (a water-related issue, I assure you), will also make supply-chain resilience important in future investments. We are already seeing recent efforts by governments in the EU and the US requiring big corporations to report on sustainability in their supply chains – this is the private-sector response as well.
Why Should We Care?
Why is this worth knowing? Historically, water has been a simple reporting requirement without a lot of teeth in the investment world – something people knew existed but largely scooted aside to talk about carbon, energy, and other, more money-rich industries. This is something I've seen in investor conversations over the last year – they know water is a concern, but it’s secondary and not really a focus in their investment priorities. Water was just something to report on.
Now? It's going to determine who gets big investments (or not), affecting their credit ratings based on how they manage water risks. According to another recent DevEx article, there is increasing business interest in water needs and challenges. The business risks to water are the thing they are focused on in the private sector. There could be new investment opportunities we need to step up to for nature-based (green) solutions, such as mangrove restoration and rainwater harvesting.
Water hasn’t been the primary focus for capital allocation in the same way as some other development sectors. What feels different here is that water is now being framed as directly influencing risk, creditworthiness, and ultimately where money flows. In the context of the current funding constraints in the sector, this almost feels like a wake-up call and could be an opportunity to ask whether the sector needs to engage more actively with questions of bankability and rethink how water-related solutions are structured and positioned.
However, the water sector has historically been unable to meet investors' demand when needed. A recent DevEx article reported that water isn’t seen as profitable work, with a $7 trillion financing gap needed by 2030. The private sector has provided only 1.7% of water-related investments worldwide, while the government bears the brunt without the coffers to support it.
The Current Challenge: We Speak A Different Language
The water sector and the investment world don't speak the same language — and we haven't really tried to learn theirs.
The low margins in water and sanitation have long made direct investment unattractive. Unlike in energy or tech, returns are slow, infrastructure is expensive, and customers are often governments or communities that can't pay the full cost. That's a hard sell. And because investors largely passed on water for so long, the sector never really built the muscles for that relationship — we don't have many people who know how to structure a bankable project, pitch to a credit committee, or translate years of solid technical work into the language of risk and return.
Investors are increasingly concerned about water risk and resilience, but the sector hasn’t always been positioned to align with investors' evaluation of opportunities. If we can’t meet this demand, the consequences will come, but without the money to address them. Other sectors rely on us – tourism, fisheries and aquaculture, and others – and they may lose money without our leadership. Transboundary water resources could become more prone to geopolitical conflict. Climate events will hurt communities more than necessary, and recovery could be long, painful, and inequitable.
But here's where things get interesting: water being repositioned as a risk factor rather than just a development need might actually change the math. Investors don't need to be convinced that water is good and worthy. They need to see that ignoring water threatens returns they're already counting on. That's a different conversation — and one the sector is not yet equipped to have confidently.
What We Should Do
Learn to tell our story in financial terms: Water organizations often have the evidence; they just haven't packaged it in a way that maps to how investors assess opportunity and exposure. That doesn't mean abandoning the human stakes of water access — it means adding fluency. For water practitioners, this is a practical challenge:
Can you describe your work's outcomes in terms of risk reduction, not just in terms of lives improved?
Can you point to what happens to a supply chain, a credit rating, or an agricultural yield when your intervention succeeds — or when it doesn't exist?
If the answer is no, that's worth fixing.
CEWAS recently conducted a credit assessment of small cities in India to help attract investors. Maybe this is a starting place for some in the water sector to articulate our stories to the finance world.
Organizations like FLUSH specialize in exactly this translation — helping water and sanitation actors build strategic communications that are rooted in data, clear about impact, and calibrated to the right audience.
Build real relationships with the finance world: The sector can't wait to be discovered. That means more water professionals showing up in investment spaces, more cross-sector convenings, and deliberate effort to co-develop the frameworks that make water projects legible to capital markets. For investors, this shift requires some self-reflection too.
If water is now a credit risk factor, are your due diligence processes actually equipped to evaluate it?
Do you have the technical expertise in-house — or access to it — to assess water governance, infrastructure resilience, or watershed health?
Most don't, yet. Closing that gap is urgent.
Make communications a strategic investment, not an afterthought: For the broader water sector — funders, networks, utilities, NGOs — this is a moment to get intentional about positioning.
What story is your organization telling, and to whom?
Are you documenting outcomes in ways that speak to financial audiences, not just technical peers?
Are you proactively communicating your value proposition, or assuming the right people already know what you do?
The sector has spent decades building technical credibility. Now it needs to build financial credibility.
Regardless of where you sit — practitioner, investor, policymaker, or network — a few questions are worth asking right now:
For water practitioners and organizations: Is our impact documented in a way that an investor or credit analyst could use? What would it take to get there?
For investors and financial institutions: Do we have the technical capacity to evaluate water risk meaningfully — or are we relying on proxies that don't capture what's actually at stake?
For funders and sector networks: Are we helping the organizations we support build the communications and financial fluency they need to attract new kinds of capital? Or are we leaving them to figure that out on their own?
The moment is real, and the demand is there. What we need now is the capacity to meet it by knowing how to talk about what we do.
