Guest post by: Emma Miller, Senior Director for Sustainability and Social Impact at Xylem

As the U.S. water sector faces the challenges of aging infrastructure, worsening drought, contamination, and millions lacking clean water, an urgent need has emerged for a dedicated financing solution.

The standard instrument used for funding environmental projects — green bonds — permit water projects but don’t prioritize them, leaving water infrastructure to compete for proceeds against larger, better-understood energy transition investments and consistently losing.

Now is the moment for the U.S. to build a real market for blue bonds, dedicated fixed-income instruments that direct capital exclusively to water infrastructure, ocean health, and coastal resilience. My company, Xylem, recently took the first step toward that goal by issuing the first blue bond by a U.S. corporation.  As a company focused entirely on water, Xylem saw an opportunity to advance sustainable solutions while helping direct more investment toward solving global water challenges.

Xylem operates at the center of some of the world’s most urgent challenges, from water scarcity to contamination to infrastructure resilience. Our work is grounded in building a more water-secure world.

Rather than treating sustainability as a separate effort, we aim to align our approach with the reality of our business. This meant revisiting our 2020 green finance framework and evolving it to reflect the company’s priorities today. The updated framework centers on three areas:

  • Decarbonizing the water sector
  • Advancing water stewardship
  • Expanding access to safe water and sanitation

Then we asked, how can we more clearly connect what we do every day with how progress on water is funded? From there, the logic of a blue bond became clear.

Strong Demand

 After a focused round of investor engagement, the company launched a $1 billion transaction structured in two parts: a $500 million 7-year conventional bond and a $500 million 10-year blue bond. The response was immediate. Demand was strong, with particularly high interest in the blue bond. This reaction reflected more than interest in a new label. It pointed to a broader shift. Water is rising on the global agenda, and investors are responding to that reality.

Although blue bonds have historically been issued by sovereigns and multilateral institutions, the case for a dedicated U.S. blue bond market has never been more urgent. The gap between drinking water infrastructure needs and current investment already stands at $309 billion and is projected to reach $620 billion by 2043.[1] Meanwhile, the White House’s FY2026 budget proposes cutting the Clean Water and Drinking Water State Revolving Funds from their FY2025 levels.[2] Private capital markets can fill the void. A dedicated blue bond framework is the mechanism that makes that possible at scale.

Building a U.S. Blue Bond Market

 Creating a market will require three steps:

  • Establish a national blue bond taxonomy. The U.S. needs a clear, standardized definition of what qualifies as a blue project, covering drinking water infrastructure, wastewater treatment, coastal resilience, and water access. This will provide issuers with a framework to work from and give investors a basis for comparison. The EU’s Green Bond Standard offers a model; a U.S. equivalent tailored to water outcomes is the logical next step.
  • Mobilize municipal issuers. Cities and water utilities are the natural home of blue bond issuance at scale, but most lack the capacity to structure labeled debt without support. Federal incentives, such as tax treatment, technical assistance, or credit enhancement through existing programs like WIFIA could unlock a wave of municipal blue issuance commensurate with the crisis.
  • Build the investor coalition. Xylem’s experience shows that demand exists. The next step is formalizing it through dedicated blue bond indices, ESG screening criteria that distinguish water outcomes from broader environmental categories, and engagement with institutional investors to establish water as a standalone asset class within sustainable fixed income.

Over the next 12 to 24 months, Xylem will allocate the proceeds of our bond to projects that improve water efficiency, quality, and access, as well as areas such as environmental monitoring and disaster preparedness.

It’s a first step, but a significant one, in demonstrating that the market is ready. The question now is whether policymakers, issuers, and investors will move with the urgency the situation demands.

[1] https://infrastructurereportcard.org/cat-item/drinking-water-infrastructure/

[2] https://www.whitehouse.gov/wp-content/uploads/2025/05/Fiscal-Year-2026-Discretionary-Budget-Request.pdf