The Asian Infrastructure Investment Bank (AIIB) today launched new research examining how the hydrological cycle is being destabilized by climate change and the impact this is having on water security, food systems and economic performance worldwide.
‘Where the Water Flows,’ the 2026 Asian Infrastructure Finance report, argues that the water cycle itself functions as infrastructure, storing, renewing and moving water across borders and economies. But a lack of investment and governance is failing to protect its integrity. To address this, AIIB set out recommendations that can enhance the water system, including efforts to increase funding, reform governance and leverage technology.
“Water underpins biodiversity and ecological resilience, economic performance and social stability, yet it is rarely understood and managed as the interconnected system it is,” AIIB President Zou Jiayi said. “As climate change continues to reshape the water cycle, more attention must be given to generate investment for mitigation and adaptation measures.”
The report outlines the critical role multilateral development banks (MDBs) can play in strengthening the water cycle, from underpinning the natural infrastructure of the hydrological cycle to mobilizing private capital for natural and hybrid infrastructure solutions. It also examines the water financing gap, with estimates showing that water-related projects commanded about 10% of total development finance in 2020, down from roughly 30% in 2000.
The report highlights a clear global divide in the “virtual water trade” – the hidden flow of water in food and other commodities. The biggest “water exporters” are often emerging economies with strong agricultural sectors and a high dependence on water-intensive exports. In contrast, major importers such as the United States, Japan, Germany and the United Kingdom are high-income nations that increasingly outsource water-intensive production.
AIIB urges investment both in natural infrastructure that regulates water flows and maintains quality, and in engineered systems that manage storage, supply and protection. By aligning these approaches, the report concludes, there is an opportunity to shift from a growing global water crisis toward a more resilient and investable future, transforming water from a source of systemic risk into a foundation for sustainable development, and from water bankruptcy into water bankability.
Erik Berglof, AIIB Chief Economist, said: “The hydrological cycle acts as a powerful environmental pump, with forests transpiring moisture and replenishing giant atmospheric rivers of freshwater. It is a global thermostat, regulating climate through evaporation and cloud formation.”
“We now urgently need scientists, policymakers and the financial world to come together to safeguard our critical global life-support system.”
About AIIB
The Asian Infrastructure Investment Bank is a multilateral development bank dedicated to financing “Infrastructure for Tomorrow,” with sustainability at its core. AIIB began operations in 2016, now has 111 approved members worldwide, is capitalized at USD100 billion, and is AAA-rated by major international credit rating agencies. AIIB collaborates with partners to mobilize capital and invest in infrastructure and other productive sectors that foster sustainable economic development and enhance regional connectivity.
