Accounting and valuing nature to address water and climate challenges: Transcript of Moderated Dialogue with President Tharman Shanmugaratnam at the Lee Kuan Yew Water Prize 2024 Award Ceremony and Banquet

Robin Hu, Vice Chairman, Asia and Operating Partner, Temasek; Chair Asia, Milken Institute: Mr President, we live in fairly exciting and dangerous times, as climate change and the loss of biodiversity is threatening humanity. 70 per cent of the earth is covered by water and 97 per cent of that is saltwater. Therefore, the 3 per cent that is remaining is mostly locked in ice caps and glaciers. So humanity is really surviving on one per cent of the water on Earth - quite a sobering thought. A World Resource Institute report tells us that 51 of the 164 countries are expected to suffer from high water stress by 2050, and that's about 31 per cent of the world population. Agriculture today accounts for 72 per cent of the global freshwater withdrawals. In India and Ethiopia, that's 90 per cent. It's fair to say that water efficiency in the agriculture sector across the world is very poor. Industrialisation is also putting water under stress. Half of the 60 largest economies in the world are at risk of water shortages unless climate crisis is averted. So therefore, the picture is really quite grim. Are you hopeful that we're able to save humanity from a water Armageddon?

President: Well, I treat that as a rhetorical question. There are reasons for deep concern. But the same reasons, I think, offer grounds for optimism.

First - I hate to say this - but the problems have to be apparent enough, deep enough, and felt enough for people to realise that we have to act on them. It is tragic that we've got longer droughts, more intense floods and a whole set of problems around the world, one region after another, one country after the next. But that's also why minds are being focussed. And that's also why it's harder to be a climate denialist today than it was, say, five years ago, because the problems are obvious, and they're not only in a distant part of the world. They are very close to where you are.

I think there are grounds for optimism, partly because there's that growing realisation on the part of ordinary people, and the growing difficulty to be a denialist. But I'm also optimistic because when you think about water, first and foremost, the source of the problem isn't natural. It is human made. The source of the problem is mismanagement - gross mismanagement for decades, both of the sources of supply of water, as well as the way we use water, the demand for water. And if that is the case, if we are mismanaging water so badly, it also means we can manage it better. If the problem was human-made, it can also be human-solved, and we can come to that later.

It requires first, some basic reorientations in the way we understand the problem and the way we understand that we are all in this. It affects all of us. It's not just about another country that's having a very severe drought or severe flood, or that's finding its cities subsiding, which is happening all over the world. It's actually a global problem. And understanding the science and presenting the science in ways that people can understand is, I think, a very important priority. Democratising the science.

The two key shifts or reorientations in thinking that we need - and in fact, the Global Commission (on the Economics of Water) that I am privileged to co-chair would be advocating this - is first, we have got to understand that we are interdependent in many more ways than we think. We used to think about water interdependence in terms of the rivers that happen to cross boundaries, sometimes a lake, and for some countries, even a pipeline through which we import water from a neighbouring country. That's one form of interdependence.But there's a much larger form of interdependence that science now tells us about, and that is the interdependence that comes from the atmospheric rivers, the atmospheric flows of moisture that connect countries and regions, and in fact connect large parts of the world with each other.

It's not something that's as visible as a river or even groundwater, but it accounts for more than half of the rainfall we get. More than half of the rainfall we get actually comes from plant life, from what's called green water - the water that's in the surface of the soil, in the plants, and eventually through transpiration, ends up in the atmosphere and comes back through precipitation. More than half of the rainfall that we depend on comes from green water, not the water that we see, which you might call blue water - the rivers, the lakes, and the groundwater.

So we are greatly interdependent with each other. It's not just the Amazon and the regions around the Amazon where you get a large flow of moisture in the atmosphere. If you take this part of the world, Southeast Asia imports atmospheric moisture from Australia and New Zealand. And that Eastern stretch of the Asia Pacific and Southeast Asia in turn exports moisture to China and Northeast Asia. It's a very significant flow of moisture that makes us interdependent.

There's another reason why we are interdependent, and that is that the water cycle is inextricably linked with the climate challenge we face.

Water is not just a casualty of the climate challenge in ways that everyone understands - the droughts, the heatwaves, wildfires and so on. Water is also a cause or a driver of the climate challenge, because the carbon stores in the wetlands, the soil and in the forests are being diminished because of our mismanagement of water.

Our degradation of the wetlands, our overextraction of groundwater, our mismanagement of water is itself a driver of climate change. We are losing the stores of carbon and increasingly, the natural ecosystems that used to be able to sequester carbon are becoming net emitters of carbon.

So we're really in a vicious cycle. And that's another reason why we must understand the interdependence. It's not just about the rivers and the lakes. It's really about that link between the water cycle and the climate cycle.

But I'm optimistic because water is solvable. We can solve the water crisis. We can coordinate internationally, we can take actions in our national interests that can solve this crisis. We have the technologies, we can mobilise the finance, we have got to have the willingness to coordinate and collaborate with each other. But we can solve this crisis. If you like, water is the low-hanging fruit in addressing the much broader challenge of climate and biodiversity.

Robin Hu: You mentioned that the problems and the crisis of water are caused by man, and perhaps a solution will also lie in the heads of man as well. And this is probably a good time for us to talk a little bit about the possibility of the importance of water innovation and water adaptation.

As we know, changes to the global hydrological cycle have led to unprecedented floods, storms, drought, heatwaves - here today and there tomorrow. So today, one child under the age of five dies every 80 seconds from diseases caused by water pollution. 2 billion people are yet to have access to safe water. The Global Commission for the Economics of Water, which you mentioned that you have the privilege to co-chair, published a report last year. In it, it states that we must drive down the cost of technologies by adopting them at scale. So the solutions seem to lie in innovation and adaptation. The question is, how can we move from the path of mutually assured destruction to mutually assured prosperity across all fronts, including policy, science, innovation, adaptation – and you mentioned earlier – investment?

President: The reason why I said water is the low-hanging fruit in the broader climate and biodiversity challenge, is because I think we've reached a turning point where the innovations required to solve the water crisis are now within our reach. A fair number are within our reach within this decade, and most of them are within our reach in the next three decades.

If you compare it to the climate challenge, it's broadly assessed that about 50 per cent of the technologies required for us to reach net zero are already available. They already mature, they need to be scaled up, and the cost needs to be driven down. About 50 per cent of the technologies are available, and the other 50 per cent are still at an experimental stage – green hydrogen, direct capture from the air, and so on.

When it comes to water, I would say at least 75 per cent of the technologies required for us to solve this crisis to stabilise the global water cycle are available. They are mature and they too need to be scaled up. We need to drive them down the cost curve so that they can be scaled up all around the world, including in the developing world. And that's a great source for optimism. We have to organise it, we have to finance it, and we've got to create demand for these water technologies, from the smallholder farmer to the industry that uses a lot of water. We've got to create that demand.

That's why it requires not just private markets, which are critical, but we will take a long time to solve this. You need public policy that incentivises demand and incentivises change on the part of those who are using water in agriculture, in industry, even in domestic use in households. And it can be done because we have lots of case studies around the world, in cities as well as in rural areas, that actually show how you can conserve water, you can improve yields in farms, you can improve farmers’ incomes, and you can have sustainable agriculture and sustainable industry.

So the best practices that we see in cities, towns and rural areas around the world need to be scaled up. I'm optimistic. Set ourselves challenges and work together to meet it– the public and private sector within countries. Find ways in which you get international support, particularly for the developing world, so they can scale up these solutions.

Robin Hu: So we need to drive across policy, science, R&D, technology development, investing and deployment of capital to be able to solve all the problems by putting all these things together.

President: And most importantly, I would say, start valuing water seriously. Start pricing water seriously. Subsidise the poor so they have access to clean water. But if we don't price water, we are going to discourage innovation, we are going to discourage water conservation, and it's going to be terrible for the poor. If you don't price water, it's terrible for the poor because water will be used excessively in industry and by the largest farmers, by the largest users, and we won't have enough for the poor.

So we've got to move away from the mindset, which still exists in a lot of international discussion, that thinks of water pricing as something that's inequitable. It's exactly the opposite way around. Water pricing is necessary for us to conserve water and to use it more efficiently, to have more water available for those who are underserved today.

And then we've got to accompany water pricing with appropriate subsidies. Subsidies for the poor, subsidies for the small farmer, and very importantly, get rid of the bad subsidies, because we've got about $700 billion of subsidies each year spent on encouraging people to use water or energy excessively, including fossil fuels.

So we've got to redirect those subsidies to good use, so that we encourage sustainable practices and we support the poor.

Mr Robin Hu: On the note of pricing water right and correctly, it is important to understand that we have to price natural capital correctly as well. And I think we all understand financial capital, we know social capital, we know human capital, but very little is understood or talked about in terms of natural capital. So, if I can bring us back to the Rio de Janeiro Earth Summit in 1992, that Summit had some very significant deliverables among them - the UN Framework Convention on Climate Change, and of course the Convention on Biological Diversity. So, in a way, climate change and biodiversity loss were identified as nature's existential threats at around the same time, 32 years ago.

Since then, of course, overwhelming science and evidence has turned climate from crisis into accounting. And accounting then translated into policy making, corporate responsibility, consumer behaviour, all of which are very good.

But as we know, we are all loathe to subject our children to financial debt.And I think we now loathe to subject our children into climate debt, but we are quite nonchalant about subjecting our children and future generations into nature debt.  Why is that? And the notion of natural capital remains a very fuzzy concept to even the most informed segment of our community. What can we do to correct this?

President: We have got to make it less fuzzy, the whole concept of natural capital. 

First, we are addressing a reality. If you take water for example, water doesn't come from the tap.  It comes from natural ecosystems that evaporate and transpire water, and the precipitation. That's the global water cycle. It means we've got to preserve the natural ecosystems, be they forests or wetlands, or ensuring we are not over-extracting from rivers or over-extracting from groundwater.

In order for us to preserve that instinct of conserving water and the ecosystem that produces water, and all the benefits we get from water, we have got to first account for it. We've got to know where it is, we've got to know every resource that leads to this supply for water, and we've got to value it. If we don't value it, there’s no incentive to preserve it.  And this is, I think, now catching on. In fact, at the COP last year (which saw the adoption of the Kunming-Montreal Global Biodiversity Framework), there was a major move forward, an agreement, to start accounting for natural capital.

I think we are at very early stages of this process, and there is a lot of work ahead.  First, in just getting the data together, having a systematic way of mapping natural resources, including water resources, and then having to value the benefits we get. I think we have to approach this both top down, through international agreements and the coordination required, through scientific work; as well as bottom up.

In bottom up, there's already movement. Countries are now taking very seriously the mapping of their natural resources, their natural capital. The Philippines is a very good example. It started last year on a systematic approach to geospatial mapping of all its natural resources, with water in mind as well, so that it knows exactly where its resources are and what needs to be preserved.

Companies are moving. Some companies are heavy users of water; we were all enjoying the beer that was given to us. All the drinks manufacturers use a lot of water, naturally. Coca Cola, Pepsi, Heineken, and so on. But these companies now realise, especially the leaders in the field, that it is an unsustainable business unless they invest upstream in the natural catchments, help farmers to use water more efficiently and treat that as part of their business model. Help conserve natural catchments.

They all realise that it's now unsustainable, and they are adopting various forms of natural capital accounting, in its primitive form at the very least, because they know it is in their own interest. They might not be mandated to do it now, but they know 10 years, 15 years from now, it's going to be necessary, so they might as well take the lead.

And I'm quite impressed by what some of them are doing. Danone is another example. Olam happens to be Singapore-based - another very good example that has natural capital accounting, systematically, in its business, and it knows that it has to preserve sustainability upstream, not just in the plant where it's doing the manufacturing or the processing.

So, I think we need both, a top-down approach which eventually has to translate into regulatory practices and disclosure practices. Just like we've achieved for carbon, we have to move on to biodiversity and water. And I would say water, even there, is the low-hanging fruit because it's much more specifically defined compared to the biodiversity. 

But we also need to get a lot more voluntary action on the part of corporates, with the largest corporates being able to take the lead, because they know that 10 years from now, this is unsustainable. They've got to have a way of valuing and preserving the natural ecosystems on which their business depends. 

Robin Hu: On a regulatory note, I recall some years back there was no requirement for us to disclose anything on sustainability and climate. Now we do. Do you see the day that will come, and perhaps soon, that we will have to disclose on nature?

President: I think it is inevitable, and like I said, the COP in Kunming last year was a major step forward.  But it's a lot of hard work. We are still at a very early stage of that process. 

Robin Hu: As in all things, it helps to have money. And to solve the problem of climate of biodiversity and water crisis, we need some money. Money, as we know, gravitates towards where the risk-return reward is the best, and advancing nature, unfortunately, doesn't appear to be that, at least not now. So how can capital owners, investors, companies, NGOs, governments, all get together to deploy capital to preserve biodiversity, and invigorate nature's ecosystem by adding moisture to the life cycle? 

President: When I mentioned that water innovation is at a turning point, it is at a turning point not only because the technologies are now mature and available, but because it's an investable opportunity - you can earn a decent return from water innovation, in every sector.

If you take agriculture, the techniques of micro-irrigation, the techniques of regenerative agriculture that improves soil health, pay back the investor, be it a farmer or an external investor relatively quickly, because this is a mature technology. Within six months to one and a half years, you get a payback on your investment.

If you take the circular water economy, recycling of water, generating value even out of wastewater, it's an investable opportunity. If you take the most basic humanitarian objective, which is making sure that no child need die from lack of access to clean water, there is so much to be done by way of investment in decentralised wastewater treatment.

In fact, there are several companies in Singapore that are doing that. There's a very interesting project based in Nanyang Technological University that's doing it in Myanmar. There's a company called Atera that is doing it in Vietnam. Low cost, affordable, small scale water treatment using reverse membrane technologies, using membranes with special carbon particles.  All these need to be scaled up. They're affordable, they earn a decent return, and they're good for the communities that we're engaging in.

So we have got to avoid looking at the world as having a set of problems that are of a humanitarian nature and require only public capital; and another half of the world is being investment capital driven by the private sector. They're actually the same world. You've got to look for investable opportunities everywhere, enable communities to benefit from investment, and ensure that capital can be recycled because it earns a return.

That's the only realistic strategy, because the public sector globally does not have infinite resources. In fact it's running out of resources. And the task of public policy, nationally and multilaterally, has to be to mobilise private capital by providing it with some regulatory certainty, sometimes providing it with an incentive as well, or some sharing of risk, because there is opportunity for investment in solving these large problems of the commons.

Participant: Singapore has accomplished so much; it is like the Silicon Valley of technology. But where do you think Singapore can play the next role? It's already been an example about the four national taps, the water. You have a vision, but how does Singapore take what you have articulated and spread that over the world?

Participant 2: Christopher Gasson from Global Water Intelligence. What proportion of Temasek's portfolio do you think should be held in water related assets? What proportion is it now and what should it be in future?

President: On the first, I think Singapore's realisation from its very outset, and Mr Lee Kuan Yew's leadership insistence, was on water being existential for our country.  The good news is that water is now becoming existential for every country. So, Singapore had no choice but to innovate, to take it very seriously. It wasn't just the responsibility of one minister or one agency, it became a Cabinet responsibility, a whole-of-government responsibility, and in fact a whole- of-society responsibility, as it is in the Netherlands and some other countries. We now need that same cast of minds everywhere. Water is becoming existential.

Our role is modest because we are a small country, but we can be a testbed for experimentation. Not just experimentation in the lab, but in the field. And I'm quite encouraged by the fact that there's a whole set of companies that are coming up. Some are Singaporean or Singapore-based, some are foreign companies that are coming to Singapore to collaborate with our universities or with other companies here. There are spawning experiments everywhere in Asia, from agriculture to industrial wastewater recycling.

I think the other role we can play, besides scaling up innovation, is in blended finance, which we take very seriously in Singapore, because that has to be the investment finance solution.

It's not going to be the public sector by itself, and the private sector on its own will not move fast enough. We need blended finance to spur the process, to front-load the innovations, and we think it can be done. And we want Asia to be not a laggard, but a leader in this area.

On Christopher Gasson's question, first of all, I can't answer on the behalf of Temasek. Even if I was still part of the government, the government doesn't answer on behalf of Temasek. But I must say I'm impressed by Temasek's commitment to climate, water, and biodiversity. It sees it as an investment and part of the investment universe, and it sees that intersection between decent investment returns and doing good for the planet.

That, I think, is a huge opportunity. Climate, water and biodiversity are the largest investment opportunities we’ve seen in 50 years. Investments in innovations that are mature and can be scaled up. Investments of a higher risk in the more experimental technologies that are not yet mature, but out of which will come successful technologies with very high returns.

You got to think of it globally, because the largest opportunities are actually in the developing world, but there is appetite for it now amongst leading players in the investment world. 

Robin Hu: We've ended right on time and thank you for the questions. Ladies and gentlemen, the President of the Republic of Singapore.