• Rand Merchant Bank and the Development Bank of Southern Africa are preparing a five-year $122 million green bond.
• The bond will finance nature-based watershed restoration and will link disbursements to measured environmental results.
• South Africa faces a $5.5 billion annual water infrastructure funding gap, with total needs reaching $15.6 billion by 2050.

Rand Merchant Bank and the Development Bank of Southern Africa are preparing to issue a green bond of about $122 million dedicated exclusively to water conservation projects. The five-year instrument will finance ecological restoration of strategic water catchment areas that are critical to South Africa’s water supply.

The banks have not disclosed detailed structuring terms. However, they have designed the instrument as a “results-linked” bond, meaning issuers will release funding to service providers progressively based on verified environmental improvements in targeted watersheds. This structure departs from traditional water bonds, which typically finance heavy infrastructure such as dams, pipelines and treatment plants. Instead, the proposed bond will target nature-based solutions.

Planned actions include removing invasive plant species that degrade soil and consume excessive water resources. The initiative comes as South Africa ranks among the world’s 30 most arid countries, which makes water conservation a central sustainability issue, according to the Department of Water and Sanitation (DWS). The country is facing both climate change impacts and structural weaknesses in its water infrastructure.

At the same time, public finances remain under pressure, which limits the state’s capacity to fund investments alone. A study by the Development Bank of Southern Africa estimates that water sector investment needs will reach $15.6 billion by 2050. The bank estimates the annual funding shortfall at $5.5 billion, creating room for greater private sector participation. The proposed bond illustrates a gradual shift toward innovative financial solutions to address a critical environmental challenge.

If the issuance succeeds, it could pave the way for a new generation of bonds focused on ecosystem restoration rather than solely on physical infrastructure. The instrument would align with a broader trend of mobilizing debt markets to finance sustainable infrastructure projects. Over the medium term, similar instruments could be replicated for other water basins facing comparable fiscal and climate constraints. However, the model’s credibility will depend on the ability to measure environmental gains accurately and to demonstrate that those gains translate into improved water availability.

Olivier de Souza