On the edge of the outback in southeastern Australia, about 965 miles west of Sydney, three dozen people came together in April 2016 for an unusual ceremony. Representatives of indigenous groups, farmers, local government, The Nature Conservancy and other organisations gathered in the mottled shade of red river gum and black box eucalyptus trees along Frenchmans Creek, a tributary of the Murray River, Australia’s longest river. Australian ringneck parrots and sulphur-crested cockatoos squawked amid branches draped with mistletoe. Dried leaves crunched underfoot amid bits of kangaroo droppings.
Appearances aside, the dusty ground was actually a dormant wetland that hadn’t seen a good rain in half a decade. Just add water and the ecosystem would come alive, as it has countless times before in response to seasonal rains. In recent years, however, the natural flooding cycle has changed dramatically as large reservoirs were built to capture runoff for agriculture. Now it often seems as if there just isn’t enough water to go around, a conflict that resonates all over the world.
The April gathering was part of an innovative pilot project by TNC and local partners to help restore wetlands while at the same time benefi ting local farmers who need to irrigate crops. If it worked, the organsation may have found a tool for balancing the water needs of the wetlands with those of farmlands.
“Uncle Rex” Smith, whose Maraura indigenous community claims ancestral ownership of this land, gave the group a traditional welcome. Then he and an officer from the Commonwealth Environmental Water Office cranked open a siphon on a long black pipe that emerged from the creek. Greenish-brown water spilled from the pipe’s open mouth and spiraled across the ground.
The Darling River joins the Murray 72 kilometres upstream from the gathering. Their combined basin covers over a million square kilometres of southeastern Australia, or about 14 percent of the country.
The Murray-Darling Basin supports almost two-thirds of Australia’s irrigated farmland, which grows everything from cotton and cereals to livestock and wine grapes. Yet the watershed gets an average of just 45 centimetres of precipitation per year, giving it one of the lowest flow rates of any river system its size in the world. (The Amazon carries 725 times more water and the Ganges-Brahmaputra 95 times more.) Native species here have adapted to a boom-and-bust water cycle. During seasonal wet periods, rivers overflow onto floodplain wetlands, which bloom with vegetation and fill with fish and migratory birds. In dry times, which can last a decade or more, vegetation turns brown and dormant, and many animals go elsewhere or dig into the mud and wait for the next rainy season.
That flooding cycle changed dramatically during the 20th century as large reservoirs were built to capture runoff for agriculture. Today irrigation claims up to 90 percent of the water extracted from the basin, leaving little for the critical seasonal inundations. More than 30,000 floodplain wetlands—on both public and private holdings, including Aboriginal cultural heritage lands—are stressed in the current situation.
The imbalance came to a head during the so-called Big Dry, or Millennium Drought, which started in the mid-1990s. During this period, rivers dried up, reservoirs shrank, centuries-old trees died, and farmers watched their crops shrivel and die. The 14-year drought was the worst in recorded Australian history, and at its peak, the government created the Murray-Darling Basin Authority to manage the limited water resources and set up an open marketplace where farmers could buy and sell their water rights.
“Water markets give farmers the flexibility to use their water rights like any asset of their farming operations, such as fuel and fertiliser and seed, that can be bought and sold at appropriate times,” says Rich Gilmore, former director of TNC’s Australia program. Markets are starting to appear around the world. For example, Texas’ Edwards Aquifer and the Northern Colorado River basin each have emerging water markets.
Still, the marketplace here left farmers, conservationists and Aboriginal groups at odds over a limited supply of water. “The Murray-Darling Basin is the lifeblood of many Australian farmers, but its wetlands are also home to endangered wildlife,” says Gilmore. “The problem is there’s not always enough water for both. We wondered, would it be possible to better balance the competing water needs of people and nature, or even create a system in which that competition is diminished in the first place?”
In 2015, TNC and its partners launched the Murray Darling Basin Balanced Water Fund to solve the problem. It’s the world’s first impact investment fund to buy and sell water rights with the goal of restoring important wetlands. With support from the Murray Darling Wetlands Working Group and an Australian investment company, the partnership aims to help all stakeholders benefit from sustainable water use. Members of the working group—scientists, landholders, finance professionals and conservationists—have collaborated for more than two decades to improve and conserve degraded wetlands.
In creating the fund, Gilmore and team consulted with NatureVest, TNC’s conservation investment unit, which provided expertise to develop the fund’s structure and coordinate with Kilter Rural, the third-party Australian asset management firm that made and manages the investment tool. In its simplest sense, private investors buy transferable water rights that can be leased or sold to irrigators throughout the basin. The key, says Gilmore, is how the arrangement turns weather fluctuations from threat to opportunity.
“By happy coincidence, [often] the best time to water a wetland is when it’s wet, and the best time to water a crop is when it’s dry,” he says. So when water is scarce and demand is high, the fund leases more to farmers, meaning crops get water and investors make money. When water is abundant and demand is low, more of it is steered to wetlands, restoring the lost rhythm of flooding and drying. The result: healthy agriculture and healthy wetlands. “It works because [these] wetlands have evolved to deal with dry periods,” Gilmore adds. “They haven’t evolved to miss out on floods.”
Although green investing isn’t a new idea, this is the first investment dollars, according to Gilmore. Australia was the logical place to try it, since it already has the largest and best-regulated water market. “There is an understandable skepticism about a conservation group being involved in the water market,” Gilmore says, in part because it results in taking water away from irrigators. He adds that TNC has tried to be very respectful of the diverse views regarding water markets.
“Irrigators are easy to get along with, by and large,” says Howard Jones, chair of the Murray Darling Wetlands Working Group. “They understand you need a healthy environment to maintain a good lifestyle, including their own.”
Part of the challenge was getting investors used to the idea of water itself as an asset, and convincing them that the benefits extended to supporting indigenous engagement and resilient irrigation communities, Gilmore says. When the fund was opened to Australian investors, money flowed in quickly. The fund raised AU$27 million on an initial goal of AU$25 million, mostly from family trusts, foundations and other entities willing to try a new type of investment. The Conservancy put in AU$5 million of its own as a show of faith.
“We need to get past the idea that water policy has to be an either-or choice between people and nature,” Gilmore says. “We think it’s not only unhelpful but unnecessary. You can have multiple uses of water and have those uses be sustainable.”
Farmers are already seeing benefits from the fund. An organic dried fruit producer in Victoria sold water rights to the fund and used the proceeds to expand his business. He will lease water back from the fund over the next 10 years, giving him better price security compared with the fluctuations of the annual market. The initial AU$27 million has allowed the fund to secure more than 2 billion gallons of water to date.
At Frenchmans Creek, Uncle Rex sat on a fallen log and watched the water flow from the pipe. Behind him, log and watched the water flow from the pipe. Behind him, an old eucalyptus bore a deep vertical scar where long ago, someone—maybe one of his ancestors—peeled off a section of bark to make a canoe. “This is my mum’s country,” he said. “For years my family has been fighting for this. It’s been a long time coming. It’s good to see.”
The watering event at Frenchmans Creek—which was aided by the Tar-Ru Lands Board of Management—was the first to be supported by the fund. After half an hour, the water had formed a shallow pond whose edges crept slowly into the trees, and the smell of eucalyptus hung on the breeze.
Jones has grown wine grapes in the area for decades. “This is profound to me,” he says. “I see it as the first step in a long journey, reintroducing water where it once was in abundance.” He’s not the only one in the group whose eyes are misty at seeing two years of work and negotiation come to fruition. “So many partners coming together, that’s the beauty of it,” he says.
For six weeks, siphons pulled water from Frenchman's Creek, inundating almost a quarter of a square mile with more than 250 million gallons of water provided by the Commonwealth Environmental Water Holder. Geospatial modeling predicts that the environmental benefits will extend much farther, up to three square miles.
To track the ecological effects, four indigenous youth are learning monitoring techniques to assist in measuring the success of the restoration effort. Because the New South Wales state government has begun returning land to indigenous communities, partnering with these communities has been a priority for the fund, Gilmore says. Many of the targeted wetland sites are on important Aboriginal cultural lands, and the communities have been involved in deciding which places should be a priority to restore. Along with the youth traineeships, the monitoring also involves time-lapse, drone and motion-sensor cameras, and bioacoustics monitors to record which species return.
The fund’s long-term goal is to imitate the natural flooding cycle over the next decade and to greatly increase the watered area. On the financial side, Gilmore hopes the program proves that “even if you couldn’t care less about the environment, the water fund is a good investment.” After three months, admittedly a short window, annualised returns were running at 7.7 percent, compared with the target of 5 to 8 percent—a promising start.
The larger the fund becomes, the more likely mainstream institutional investors will be interested, Gilmore says. Financial models suggest that AU$100 million would enable returns on par with traditional, non-impact investments. That would help purchase more than 10.5 billion gallons of water entitlements—about 20 percent would be used to water wetlands.
“I’m proud that we’re able to lead the world on something like this,” Gilmore says. “Water is a fundamental issue to people’s livelihoods and well-being.”
“We hope this becomes an example for other parts of the world with water scarcity of the kind Australia has faced,” says Giulio Boccaletti, global managing director for TNC’s freshwater programs. Chile and Mexico both have functioning water markets, and China is planning to establish its own trading platform. Australia stands out as an example of how these markets could be used to assist conservation. The western United States is watching closely to see whether the Australian experiment works, says Taylor Hawes, TNC’s Colorado River program director, who sits on the fund’s advisory committee.
But at Frenchman's Creek the results were obvious and almost immediate: Two frog species appeared right away, seemingly out of nowhere, to take advantage of the unexpected deluge. And in subsequent weeks, the number of observed bird species more than doubled and the number of individual birds increased by 250 percent—all drawn for the same reason. New green vegetation appeared within weeks, and aquatic plant species increased by nearly tenfold. If the fund works as planned, this rebirth will be the first of many.