The acceptable levels of water risks are set based on environmental quality objectives (e.g. water quality standards, maximum and minimum river flow). By explicitly considering the risk of undermining the resilience of freshwater systems, a risk-based approach aims to develop water management practices that enhance such resilience. Market-based instruments can play an important role in this policy mix as they can fundamentally alter the incentives facing water users, provide explicit signals about the likelihood and potential cost of water risks, and provide mechanisms for offsetting risks. This can be considered in the context of water supply, demand, quantity and quality.