Access to safe water and sanitation is a human right, yet today 2.2 billion people lack access to safe water, and 3.5 billion
people lack adequate sanitation1. Climate change is amplifying this crisis, as it directly impacts water availability through temperature extremes, floods, and droughts. Millions of vulnerable families are ill-prepared to cope with these changes. Access to sustainable water and functional sanitation is essential for building climate resilience in low-income communities.
Yet, there is a gap in financing. The World Bank estimates that to achieve Sustainable Development Goal (SDG) 6, by 2030, $114 billion per year will be needed just for new infrastructure (excluding maintenance and operating costs),thrice the current global investment. In 2017, WaterEquity was established to mobilize and scale private investment for water and sanitation in emerging markets. The primary obstacle to providing loans for access to water and improved sanitation solutions has been their non-income-generating nature. Financial institutions offering loans to low-income clients for these needs have also faced challenges. In WaterEquity’s experience, attracting financing has involved raising awareness about the nature of the water crisis, advocating for change, demonstrating successful solutions, and improving awareness of the impacts of climate change. Its private funds invest in financial institutions,enterprises, and infrastructure that deliver safe water and sanitation to low-income communities, while seeking to align investor values with the potential for risk-adjusted returns.
DEMAND-DRIVEN SOLUTIONS: INVESTING IN FINANCIAL INSTITUTIONS FOR WATER AND SANITATION
WaterEquity was launched by Water.org, a global nonprofit organization that deploys philanthropic capital to help people living in poverty get access to safe water and sanitation through market-based solutions. Water.org’s work has revealed demand for small, affordable loans for low-income families to access water or sanitation. Families without basic services spend up to 15% of their income on water. Furthermore, hours are lost fetching water, especially by women and girls, reducing productive time and resulting in higher levels of illness.
This translates into an estimated $260 billion lost globally each year. Hence, families see significant value in taking out a small loan to improve their access to these services. Water.org enables financial institutions to develop water and sanitation microloans; WaterEquity supports them with debt investments to enable them to scale up their water and sanitation microloan portfolios. Since its launch, WaterEquity has raised more than $460 million in capital, facilitated over 1.2 million in microloans, and enabled more than 6 million low-income people in Asia, Africa, and Latin America to access water and sanitation. The following lessons have been learned along the way :
- Most financial institutions do not recognize the demand for water and sanitation microloans. Technical assistance is needed – support in identifying opportunities, designing products, developing marketing materials, training teams, and tracking results.
- The demand extends to SMEs, which fill the gap in service delivery. These need financing to improve the quality and reach of their services. In addition to technical assistance, the financial institutions serving them require derisking support.
- Client protection and good governance add impact for households. Mature institutions that are oriented towards client protection and social impact are best positioned to deliver these. Typically, they represent lower credit risk and also lower impact risk.
- Technical assistance geared towards good product design, including checks for loan misutilization and direct payments to vendors, helps to mitigate credit risks.
SCALING SOLUTIONS: INVESTING IN CLIMATE-RESILIENT WATER AND SANITATION INFRASTRUCTURE
Financing the “last mile” of water and sanitation must be complemented by investment in resilient infrastructure: existing infrastructure is vulnerable to extreme weather. Despite infrastructure investment having grown by 350% over the last decade, only 1.9% of commercial financing has been of water and sanitation infrastructure8. This is due to the lack of investible projects, and because investing in the sector can be fraught with challenges.
Hence, in 2022, WaterEquity embarked on an initiative with Water.org to develop and invest in infrastructure projects and companies. Water.org recently launched WaterConnect, which provides early-stage support for developers and others to generate investment-ready projects. WaterEquity’s first infrastructure fund, the Water & Climate Resilience Fund, achieved its first close in 2024. By investing in climate-resilient infrastructure, the WCR I Fund aims to offer 15 million people access to water and sanitation, and indirectly benefit millions more with improved water quality and reduced scarcity. The fund will
invest in projects such as public-private partnerships to build and operate water treatment plants. It will also invest in growth companies within the sector that develop and deploy innovative technologies and services. These investments are
intended to enhance reliability and efficiency at scale, while contributing to the climate resilience of communities.
WaterEquity’s twin focus on household financing and climate-resilient infrastructure is a crucial step in addressing the global water crisis. The link between water, climate, and gender is essential for impact investors like WaterEquity. Strategically investing in solutions that span household needs and infrastructure drives transformative change and eases burdens on women and marginalized communities. The climate-water nexus confers positive environmental impacts while contributing sustainable water security and gender equality impacts.