Blended finance solutions for the water sector are key to unlocking half a trillion dollars a year – report

Posted by
Anna Ford
on
23 May 2022
WaterAid/ Tom Greenwood
  • An additional USD 200 billion a year investment in water-related projects could generate an additional USD 500 billion annual economic value while delivering affordable, safe water to millions of vulnerable people around the world
  • Blended finance solutions will be key to unlocking this value, according to a new report commissioned by WaterAid and the Blended Finance Taskforce
  • The report calls for more collaboration between public, private and philanthropic investors to optimise blended finance structures and sets out key recommendations to accelerate and scale investment in the water sector

A new report, launched at the World Economic Forum in Davos today, shows that scaling investment in water infrastructure and services is key to delivering major climate, food security, health and economic benefits in emerging markets. At present more than 2 billion people cannot access safe water, and 3 billion lack decent toilets. 

Mobilising Capital for Water: Blended Finance Solutions to Scale Investment in Emerging Markets, highlights that there is a USD 200 billion annual investment gap for water, underpinned by challenges which have historically hampered private investment in the sector. 

However, the report finds that private capital can find investable opportunities, at scale, in the water sector – while generating outsized benefits for countries and communities – when blended with catalytic sources of public and philanthropic funding. 

The report provides a series of case studies demonstrating that “blending” capital with different risk profiles could have an outsized impact in unlocking additional investment for this sector which is typically perceived to be higher risk.

The report reveals that an additional USD 200 billion investment in water-related projects could generate USD 500 billion in economic value each year across a range of water assets and services.  The major areas where blending can help unlock investment include (1) ‘big water’ infrastructure (USD 157 billion investment opportunity); (2) decentralised, small-scale sanitation and water solutions (USD 29 billion investment opportunity); and (3) nature-based solutions including restoration and protection of watersheds – that is protecting a lake river or stream by managing the entire watershed that drains into it (USD 21 billion investment opportunity).

Calling for more collaboration across the public, philanthropic and private sectors to accelerate, scale and optimise investment in this area, the report sets out a number of core recommendations:

  • Donor governments should support delivery of ‘public goods’ and deploy scarce resources more catalytically to de-risk and crowd in private capital where assets are investable
  • Philanthropies should play a pathfinder role, using flexible capital to innovate and scale new business models and trial new solutions to the barriers which currently prevent investment in the water sector
  • Multilateral Development Banks and Development Finance Institutions should set mobilisation targets for their capital, embed a more strategic focus on water and sanitation into climate finance commitments, and use more catalytic instruments like guarantees to blend capital for ‘big water’ infrastructure
  • National governments should send clear signals to investors about a favourable investment environment by communicating a clear, climate-integrated water strategy and implementing cross-sectoral enabling policy and regulation
  • Project developers, entrepreneurs, incubators and NGOs should strengthen partnerships to ensure bankable solutions that attract private capital where possible
  • Private investors should work with catalytic capital to pioneer early-stage development of water and sanitation assets and ensure their portfolios are respect ecosystems and the UN Sustainable Development Goals for water
  • Academia and NGOs should standardise what ‘water positive’ assets and impact looks like

The report highlights a range of examples of successful public and private investment in water. One is the Rwandan Kigali Bulk Water Project, funded by a coalition of public and private financers, which is now providing an additional 40 million litres of water per day to Kigali’s one million residents. This would not have been possible without strong commitment from the Rwandan government, including establishing the Water Resources Board.

Another compelling example is the Upper Tana-Nairobi Water Fund where Coca Cola, a local electricity generation company, and Nairobi’s water and sewerage company partnered to support upstream interventions for water resource protection. This resulted in significant cost reductions for the companies.

The report predicts that private investors and infrastructure funds will take the lead in driving new water-related opportunities. This is already starting to happen; in 2021, Meridiam, a global investor and asset manager, successfully fundraised for a dedicated water fund, Meridiam Sustainable Water and Waste Fund to acquire the New-Suez, as a route to develop and invest in water projects in emerging markets. Climate Fund Managers has launched ‘Climate Investor Two’ dedicated solely to water infrastructure.  And entrepreneurs are raising funds for new technologies and enterprises to tap into underserved communities, like Feelwell Ceramics, a supplier of tailored sanitation solutions to rural communities in Indonesia.

Continuing this trend to scale private investment for equitable and sustainable water outcomes requires significant, sustained, and collective effort on the part of players across the financial ecosystem.  But the economic prize is worth it – for people, planet and investors.  

Tim Wainwright, Chief Executive, WaterAid UK, said:

“We are way off track reaching universal access to safe water, sanitation and hygiene by 2030, a goal the world has set itself. People who don’t have access to water close to home are building their lives on quicksand."

“To ensure they not only survive, but thrive, people need clean water for food and healthcare, and safe, decent toilets – especially women and girls."

“Public and development money alone will not bridge the huge funding gap to make this a reality for millions of people across the globe – but it can kickstart and de-risk projects to unlock private capital. As our report shows, the potential is huge.”

 

Katherine Stodulka, Director of the Blended Finance Taskforce and Partner at SYSTEMIQ, said:

“Investing in water is fundamental to climate action, food security, biodiversity, gender equality and a circular economy.  Harnessing the $200bn annual investment opportunity in water can generate outsized benefits for people and planet."

“A high-performing and equitable water sector is within reach. Blended finance structures can help transform the risk profile of water assets and services to unlock additional capital and develop an investable pipeline while supporting underserved communities and providing outsized health and climate benefits."

“The case studies in this report demonstrate that there is no need to reinvent the wheel. We must scale what is already working to create real opportunities for investors and entrepreneurs in emerging markets."

“Blended finance solutions for water can help mitigate risk and generate outsized returns for countries and communities. Scaling and mainstreaming these solutions is an absolute priority to mobilise large-scale finance for a sector which underpins the stability of the rest of the economy.”

ENDS

Notes to Editors:

WaterAid is working to make clean water, decent toilets and good hygiene normal for everyone, everywhere within a generation. The international not-for-profit organisation works in 28 countries to change the lives of the poorest and most marginalised people. Since 1981, WaterAid has reached 28 million people with clean water and nearly 29 million people with decent toilets.

For more information, visit our website wateraid.org/uk, follow us on Twitter @WaterAidUK, @WaterAid or @WaterAidPress, or find us on Facebook, LinkedIn or Instagram.

  • 771 million people in the world – one in ten – do not have clean water close to home.[1]
  • 1.7 billion people in the world – more than one in five – do not have a decent toilet of their own.[2]
  • Around 290,000 children under five die every year from diarrhoeal diseases caused by poor water and sanitation. That's more than 800 children a day, or one child every two minutes.[3]
  • Every £1 invested in water and toilets returns an average of £4 in increased productivity.[4]
  • Just £15 can provide one person with clean water.[5]

 

The Blended Finance Taskforce was launched in 2017 to tackle barriers which prevent capital from flowing to a net-zero, nature-positive and inclusive economy.  The Taskforce works with development banks and donors to help mobilise capital for climate action and the SDGs; it works on key aspects of financial system re-design, from carbon markets to pension transparency.  

By bringing leaders together across the financial system, the Taskforce helps design and scale blended vehicles, builds sustainable finance capacity in emerging markets and works with pioneers to develop innovative investment partnerships, products and asset classes, especially around natural capital and sustainable infrastructure.  The Taskforce secretariat is run by systems-change firm SYSTEMIQ. It is proud to partner with the Food and Land Use Coalition, the Tri Hita Karana Forum for Sustainable Development and other platforms which accelerate the transition to a more sustainable and equitable economy.

  1. WHO/UNICEF (2021) Progress on household drinking water, sanitation and hygiene 2000-2020. Joint Monitoring Programme. Geneva: World Health Organisation.
  2. WHO/UNICEF (2021) Progress on household drinking water, sanitation and hygiene 2000-2020. Joint Monitoring Programme. Geneva: World Health Organisation.
  3. WaterAid calculations based on: Prüss-Ustün A, et al. (2019). Burden of Disease from Inadequate Water, Sanitation and Hygiene for Selected Adverse Health Outcomes: An Updated Analysis with a Focus on Low- and Middle-Income Countries. International Journal of Hygiene and Environmental Health. vol 222, no 5, pp 765-777. AND The Institute for Health Metrics and Evaluation (2020) Global Burden of Disease Study 2019. Seattle, WA: University of Washington.
  4. World Health organization (2012) Global costs and benefits of drinking-water supply and sanitation interventions to reach the MDG target and universal coverage
  5. www.wateraid.org