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Is impact finance the solution for improving access to safe water and sanitation?

Water, sanitation and hygiene, or “WASH”, is central to human development and is linked with socio-economic improvement, environmental sustainability and good health outcomes. Water issues also exacerbate climate change and increase political instability and economic equality. 

According to the World Health Organisation and UNICEF, globally some 4.5 billion people lack safely managed sanitation services and 2.1 billion people lack access to safely managed drinking water services. 

In the world of international development, funding is a scarce resource. Getting the most amount of clean water and sanitation to the most amount of people is a critical mission. 

With many current financial solutions based in old-fashioned models of grants and aid money, alternative funding needs to be examined in order to achieve universal access to water and sanitation—which the World Bank estimated will cost $112 billion each year by 2030.

Impact finance

A 2017 report by water.org says that the traditional funding method of ‘tariffs, taxes, and transfers’ is “not sufficient to address the need for water and sanitation services in developing countries.”

Samuel Vionnet from water consultancy Valuing Nature, says that impact finance—investing made with the objective of producing societal or environmental good while also delivering a return—is a worthy consideration.

“If you want to have an impact, WASH investments is definitely one of the highest societal return on investment that exists,” he says. 

“The World Health Organisation provides a conservative average of 1:4 return on investment, while the maximum I’ve seen in some specific studies is well above 1:20. For this reason, impact finance should definitely be a good fit for WASH.”

Blended finance

Blended finance—unlocking private capital for water projects—is the latest buzzword in the sector. 

It means the “strategic use of public taxes, development grants and concessional loans to mobilise private capital flows to emerging and frontier markets, and it offers opportunities to increase the role of commercial financing for the WASH sector,” according to the 2017 GLAAS report by UN-Water.

Vionnet says that when it comes to public-private partnerships, it can often be more of a short term solution because of the risks involved. “The lack of viable projects that generate profit at medium term and at a reasonable risk can be a problem. So I would turn around the question and ask where can we find those conditions,” he says.

Impact Investing for Water, a 2018 white paper by Waterpreneurs, suggests getting around this hurdle in blended finance by using the non-repayable money, such as aid and public grants to cover operational expenditure, while using repayable money, such as debt and equity, to allow for diversification reducing the risk of the investment. 

Other ideas

The Waterpreneurs white paper also suggests exploring new platforms for funding, such as matchmaking and crowdfunding. One such effort, through LITA.co, has raised more than €445,000 (approximately AUD$713,000) for a water conservation project.

“Crowdfunding can be an interesting other source, although costly to put in place and market,” says Vionnet.

He believes that while impact investing is the most viable long term solution for alternative funding for WASH projects, the best finance is no finance. “Organic growth should be the priority, especially in developing countries where investment risks and thus interest rates are high.”

The Waterpreneurs report highlights that there is no one ‘right’ way to invest in water and sanitation—but rather, the complexity of public and private funding and governance, much like our global water systems, are deeply interconnected. 

 

This is the first article in a four-part series that explores ideas to improve water and sanitation funding around the world.

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