Developing a Nature-Based Municipal Bond for Canal Restoration in Kochi, India

Developing a Nature-Based Municipal Bond for Canal Restoration in Kochi, India 

Project Lead: ICLEI- Local Governments for Sustainability, South Asia
Supporting Partners: Kochi Municipal Corporation, Centre for Heritage, Environment and Development, India, Betchel.org, Swiss Re Foundation, Swiss Re Group, UNCDF, IISD
Financial Support:  The UK’s Blue Planet Fund
Location: Kochi, India
Project Timeline/Status: 19 months (1 September 2024 – 31 March 2026)

Project Summary 

ICLEI is developing a pioneering nature-based municipal bond to finance flood management and water quality improvements to the canals using natural solutions in and around Kochi, India. Previously supported by a grant from the Swiss Re Foundation, ICLEI South Asia, and bechtel.org, the initiative also includes parametric and traditional insurance covers to reduce risk and ensure bond repayment. 

With ORRAA’s support, the project is providing the finance for the development, design and implementation of the bond as well as training and capacity building to the Kochi Municipal Corporation (KMC), the body responsible for canal restoration. If successful, this model can be applied to other municipalities, offering a sustainable, resilient alternative to improving canal infrastructure, thus improving public health, livelihoods and flood protection.   

Challenge 

Kochi’s canals play a crucial role in economic activity and climate resilience, but urban growth, neglect and illegal dumping have left many of them stagnant and polluted, severely impacting people’s quality of life. Poor maintenance and planning have further degraded the canal’s water quality, causing an increase in water-borne diseases. 

Recent extreme flooding from coastal tides and heavy rainfall has brought renewed attention to the canal’s deteriorating state. As a result, the Kochi Municipal Corporation (KMC) is now overseeing the restoration of key canals using traditional grey infrastructure to manage flood risks. However, integrating Nature-based Solutions (NbS) could significantly enhance these efforts, improving both flood resilience and water quality. 

Solution

The municipal bond will finance the pilot activities, with this grant covering the technical setup and de-risking delivery. The bond repayments will be supported by financial gains from the green-grey nature-based canal restoration.  

The project will also include a mix of traditional and innovative insurance solutions, including construction and engineering coverage for delays, operational coverage for ongoing maintenance risks, and parametric coverage for early intervention and rapid response. This will further reduce project risks, ensuring successful bond repayment while building resilience for Kochi’s coastal communities.  

A nature-positive approach to canal restoration will build climate resilience in Kochi and improve quality of life for its 3.4 million coastal residents. By integrating green, grey, and blue infrastructure into traditional designs, this solution will boost biodiversity and support the restoration of the canal’s marine ecosystem. The green elements will reintroduce local plants and trees to reduce runoff, mitigate excess salinity and naturally purify the water. Grey activities will include traditional wastewater treatment, while the blue component will maintain clean water, enhancing resilience to ocean surges and flooding. 

Scaling and Next Steps

Once implemented, this pilot project will form an ideal case study that can be replicated and scaled, as it tackles common canal-related challenges that other cities in Kerala, as well as other states in India, face.