Scaling water infrastructure with impact

Impact investing could play a starring role in the drive to deliver safe and equitable drinking water.

Fresh water is a scarce commodity on our blue planet. Less than 1 percent of surface water is drinkable, and booming population growth, urban pressures and climate change are shrinking this precious resource. 

Today, the World Bank estimates that 660 million people lack access to clean water and 2.4 billion struggle to meet their daily sanitation needs. To achieve the UN’s Sustainable Development Goal of universal and equitable access to safe and affordable drinking water by 2030, the OECD says $1.7 trillion in investment will be needed. 

Improving commercial financing is key to scaling water infrastructure and reaching universal access. But to close the funding gap, investors need financial incentives that combine environmental and social benefits. Impact investing promises to bridge the divide. 

Impact asset manager WaterEquity works exclusively to provide access to clean water and sanitation in Asia, and provides 94 percent of its funds to women on low incomes. Since 2016, the firm has deployed $73 million in water and sanitation microloans to low-income communities that are able to make regular payments but are excluded from the banking system. 

“What impact investment offers is more patient capital that can help finance these projects affordably over the long term” 

John Simon
Total Impact Capital

An estimated 60 percent of families living in urban environments across India lack access to the sewer network, leaving many with little choice but to dump untreated waste into local bodies of water. One WaterEquity client in a city in the Indian state of Odisha, where open defecation is common, took out a microloan to construct an in-house toilet. The result was a 50 percent decline in family medical expenses and 12 hours less travelling per month, which allowed the client to keep her shop open for 10 to 15 percent longer. 

‘Patient capital’

Total Impact Capital also works to increase access to safe water and sanitation across Central America and Africa. In El Salvador, around 1.8 million people, or 25 percent of the population, lack access to in-house piped water, and a further 2.4 million suffer from unreliable access. The firm works to mobilise capital to water service providers to help address the problem.  “While water is eminently financeable, the infrastructure is expensive, so it cannot be paid in the short term and a lot of the financing that exists in local markets is only short term,” says John Simon, founding partner at Total Impact Capital. “What impact investment offers is more patient capital that can help finance these projects affordably over the long term and matches the financial capabilities of communities to pay debt service.” 

In 2020, Switzerland-based Vital Capital also launched its water infrastructure platform. The firm works to improve the availability of potable water, including the installation of pumps and pipes for storage. Investments in Angola have helped supply clean water to more than 150 rural villages, affecting an estimated 500,000 people.  

Benchmarking is a crucial component of impact investing, illustrating financial and social benefits and helping to drive further investment. Swedish pension fund AP7 teamed up with specialist asset manager Impax to develop a framework for measuring and reporting water impact. “At present, knowledge of the effects of investment decisions on the real economy is insufficient,” says Johan Florén, head of ESG at AP7. “Transparent reporting of real effects is a first step for investors to be able to evaluate the societal impact of their investments and better understand corporate governance considerations.”