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Could investment in taps and toilets be the key to unlocking developing economies?

Investing in universal access to water, sanitation and hygiene could yield massive economic gains over the next two decades – but mobilising finance is not easy

Global leaders seeking a way to rebuild battered economies could hold the key to prosperity in their bathrooms. Among the many infrastructure investments that could help create prosperity in the years to come, one of the most potent – and overlooked – is universal access to taps and toilets. Research by Vivid Economics for international NGO WaterAid has shown that each dollar invested in water, sanitation and hygiene (WASH) could generate up to a $21 return. The analysis showed that giving every home a toilet connected to a safely managed sewerage or off-mains system could generate $86bn in wealth a year.

Similarly, giving everyone access to soap and water for handwashing could deliver $45bn a year, and providing a tap in every household could yield $37bn. The value of WASH investments is likely to rise, due to the increasing impact of climate change. Already, says the research, a dollar spent on flood resistance can avert $62 in costs from worsening floods. “Our global benefit-cost analysis demonstrates that investing in WASH is a triple win,” says Caroline Vexler, Senior Economist at Vivid Economics.

“It can unlock billions in economic opportunities and health savings at relatively low cost; it can address key objectives of stimulus spending post-Covid-19; and can build resilience to increasing global risks.”

Freeing women of the burden of collecting water, by giving every household a tap, could allow them to contribute an extra 122m working days a year to the global economy

Part of the dividend from investing in WASH is expected to come from empowering women. In most communities where people do not have access to running water at home, it is largely girls and women who bring in supplies. Worldwide, women spend an average of 200m hours a day collecting water. Freeing women of this burden, by giving every household a tap and running water, could allow them to contribute an extra 122m working days a year to the global economy.

At the same time, the provision of private toilets in schools could improve menstrual health and hygiene, reducing drop-out rates. In low-income nations, each additional year of schooling has been shown to increase long-term income prospects by up to 10 per cent. Despite these obvious benefits, investment in WASH has largely been overlooked by funding parties. For years, says Jennifer Sara, Global Director for the World Bank Group's Water Global Practice, water has been “undervalued and under-priced”.

“Because water appears to be a ubiquitous, renewable resource, its value is often underestimated,” says Scott Gunter, Chief Executive of insurer Axa XL. “Certainly, as the world's most essential resource, water systems – both natural and man-made – are misunderstood,” he adds. Perhaps because of this, “the water and sanitation sector has been underfunded for decades, particularly outside urban areas,” says Laura Chinchilla, former President of Costa Rica, and Global Leader of the global partnership Sanitation and Water for All.

“In rural areas and small towns, as well as in informal settlements all over the world, access to these vital services is often deplorable,” says Chinchilla. “The Covid-19 pandemic has exacerbated these inequalities, and exposed the fragile situation of service providers in many countries.”

Research has shown that for there to be universal access to clean water by 2030, and achieve the UN’s Sustainable Development Goal, $229bn in capital investment would be required each year. This is only around one and a half times what the UK is spending on a high-speed rail link between London and Birmingham and, in theory, should be an attractive proposition to private investors, given the potential return on investment.

By 2050, 45 per cent of global domestic product is expected to be at risk from water-related issues

However, WASH investments are challenging for private sector investors because the societal benefits they unlock do not easily translate into traditional revenue streams. But awareness of the need to invest in WASH is expected to grow as climate change brings water stress to more and more people, businesses and economies. At present, more than 25 per cent of the world’s population live in water-stressed regions, according to the United Nations Global Compact, a voluntary initiative based on chief executive commitments to implement universal sustainability principles. There will be a 56 per cent shortfall in freshwater supply over the next decade, it says.

And, by 2050, 45 per cent of global domestic product is expected to be at risk from water-related issues. To combat this threat, in November 2020 the UN Global Compact’s CEO Water Mandate initiative launched the Water Resilience Coalition, which aims to preserve global freshwater resources, with support from AB InBev, Diageo, Dow, Ecolab, Gap Inc, Microsoft and PVH Corp.

“Fortunately, we are seeing increased private sector engagement in WASH, as it moves from a philanthropic activity to a corporate sustainability activity, and evolves from access alone to resilience,” says Jason Morrison, Head of the UN Global Compact CEO Water Mandate. “The view that WASH is solely a cost to businesses and a responsibility in terms of the health and safety of workers is, perhaps, outdated. The growing awareness of climate change risks to providing and maintaining access to water, sanitation and hygiene has opened a new narrative for WASH resilience.”

Initiatives such as the Resilient Water Accelerator – which aims to protect 50m people from climate and health threats by boosting their access to clean water – demonstrate how private finance for WASH projects could be unlocked. Led by HRH The Prince of Wales’ Sustainable Markets Initiative, the accelerator brings together leading corporations with national governments to ensure that more finance is fast-tracked towards providing and protecting communities’ vital water services.

Observers hope such high-profile initiatives will attract more private investment to WASH, bolstering support from development agencies and other public sector and non-governmental actors. Rick Lacaille, Executive Vice President and Global Head of Environmental, Social and Governance at State Street Corporation, says that engaging private sector investors will likely require a partnership approach involving intermediaries that can aggregate projects on the ground and bundle them up into bond offerings.

“Investors buy financial instruments from people in whom they have a lot of trust, where the risk is low,” he says. “So, people will invest money with multilateral development banks that they'll buy green bonds from. Those institutions need to connect with local projects, through local governments, to find and source opportunities that they can then finance.”

As it happens, concessional finance providers are already laying the groundwork for such collaborative ventures. The World Bank, for example, is working with national governments to introduce stable regulatory frameworks and creditworthy utilities that private sector finance will want to invest in.

An example of this approach is a $1.1bn financing package agreed with Luanda, the capital of Angola. Here, concessional finance will act as a backstop to help private finance participate in the development of water production, transport and distribution facilities that will benefit 2m citizens.

And getting business interested in investing in water is only part of the equation. As climate change increases the stress on the world’s water resources, it is likely that many businesses will increase investment purely as means of survival.

“For many companies, water is a strategic priority,” says Dr Rory Sullivan, Chief Executive of Chronos Sustainability, a specialist consultancy firm. “Without clean, dependable water their businesses cannot function, and their employees are much less likely to be healthy. Companies that are large users of water may find themselves in competition or even in conflict with other users of water.”

With growing awareness of the importance of water, the scene is set for increasing investment in water, sanitation and hygiene. The key now is to get public and private sector stakeholders working together in a way that maximises the benefits for millions.

 

Photo by WaterAid/Ranita Roy.

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