Collaboration & Co-Creation Collaboration & Co-Creation

Turning Innovative Financing Into Principled Action:
The Case for Safe Drinking Water

This year’s World Economic Forum’s Global Risk Report lists water as the number one risk in terms of impact – it even surpasses failure to adapt to climate change, which currently sits at fifth place. The impact of water can already be seen and felt across different parts of society:

By Nadia Kähkönen | Published 9 years ago | About a 5 minute read

Recent droughts in the western United States and Brazil have made international headlines, and are evidence of an underlying problem: the overuse and mismanagement of our water resources is leading to high levels of water stress globally. A recent study by CDP found that two-thirds of the world’s largest companies are now reporting exposure to water risks - with 22 percent anticipating that this could limit the growth of their business. These larger-scale water risks threaten to further worsen the situation for the 780 million people who currently lack access to safe drinking water.

Adoption rates for traditional solutions around safe drinking water have been alarmingly low, the reasons for which are manifold: In some cases appropriate technology is not available, or the available technologies are not used effectively, and oftentimes capacity-building programs do not succeed in fully educating communities in correct use of safe drinking water technologies. Additionally, there continues to be a lack of understanding surrounding hazards of contaminated water, which further reduces adoption rates of safe water technologies in developing countries. For many, water remains an aspirational good that they cannot afford and are not willing, or able, to pay for.

Because of the challenges associated with improving access to safe drinking water, there has been a strong push to implement business models for safe drinking water in the past several years. Various actors have recognised the vital role water plays for business and the communities in which they operate. In 2012, the Swiss Development Cooperation (SDC) launched a fund on private sector engagement in water, the Swiss Bluetec Bridge which strives to accelerate sustainable access to water for economically poor people in rural areas and small towns in developing and emerging countries at the base of the pyramid (BoP). And Water & Sanitation for the Urban Poor (WSUP) a global partnership of NGOs, prominent private sector actors and academia - partners with service providers and local government to build capacity and improve lives by delivering clean drinking water and sanitation services to the urban poor in developing countries.

Despite the increase of private sector engagement in water projects, critics fear that this is but a new way for it to profit off the poor without actually alleviating the dire straits of access to safe drinking water. Corporate Accountability International (CAI), an NGO focusing on public health, environment and democracy, recently submitted a letter to the President of the World Bank Group calling on him to end the support for private water. The NGO argued that “water corporations are not in the business of funding long-term, sustainable infrastructure to deliver water to those in need.” The World Bank Group is one the largest funders of water management in the developing world, with loans and financing channeled through the group’s International Finance Corporation (IFC).

In spite of diverging views on water management, the negative trends in freshwater remain a shared challenge, and society will require a vast range of options to tackle the varying terrestrial, climatic and cultural dimensions of the problem - both from the public and private realm. Impactful investment solutions were even called for by the CAI signatories of the letter to the World Bank Group, showing the ever-growing need for results-based financing.

Innovative financing mechanisms from, for instance, carbon credits have been successfully used to finance drinking water projects. Due to the traditional pay-for-success nature of carbon credit methodologies, the system can help ensure that donor funding is used for the right purpose. For example, the NGO Evidence Action has developed a technology that is a first of its kind in enhancing usage and adoption rates for means to access clean drinking water. In order to finance and scale the technology, the organization collaborated with south pole group and formed a groundbreaking partnership that used carbon finance to give 3 million people access to safe water. While carbon financing creates a framework within which to measure and certify environmental impacts, any program that uses carbon financing to increase access to safe water must take care to ensure robust impact measurement for water-related benefits is incorporated as well.

A world where every person has access to clean drinking water will be a healthier, not to mention more productive world – more productive by approximately $260bn a year according to the World Bank. But having the best technology alone will not solve the clean water crisis. At the end of the day, the drinking water calamity, as well as the global water crisis as a whole, is not a crisis of technology but rather a crisis of management. Looking into the future, the private sector should go beyond simple water management – it should look into innovative mechanisms that allow for a true commitment to the sustainable management of shared water resources through collective action with communities, governments, NGOs and other businesses. The growing interest from both investors and the private sector in water should be seen as positive trend; when interest turns into principled action, the troubling trends within our water resources may well be reversed.