Closing the $7 Trillion Gap: Three Lessons on Financing Water Investments from World Water Week

The world needs to mobilize up to $7 trillion by 2030 for global water infrastructure, if we are to meet our water-related SDG commitments and address decades of underinvestment. However, nearly 91% of annual spending on water comes from the public sector, including governments and state-owned enterprises, with less than 2% contributed by the private sector.

Building a sustainable and resilient water sector will require more than just larger flows of capital — a challenge of this scale requires a commitment to reforming the sector through progressive policies, institutions, and regulations, and better planning and management of existing capital allocated to the sector. Moreover, it merits professionalizing the sector through efficiency in operations and service provision, and a focus on financing with de-risking, which leverages the capacities of both the public and the private sector.

This was the topic of discussion during a session titled “Unlocking the Financing Ecosystem for Water Security” during World Water Week 2024. The session, hosted by the World Bank in Stockholm on August 26, provided an opportunity for an open conversation between key players from government, the private sector, financial institutions, and development partners about how to scale up financing for water and leverage every dollar we invest.

The session outlined three key takeaways as a possible blueprint for mobilizing more investments in the sector.

1.      Building a foundation of trust

Governments and the private sector will need to work together to bring about transformation in the water sector. The public sector plays a crucial role in establishing the enabling conditions and necessary reforms to facilitate a greater flow of both public and private finance for essential water sector investments. This will require stronger policies, regulations, and governance, and the strategic and efficient use of existing resources, with the aim of supporting creditworthiness of service providers and the bankability of projects.

The session highlighted the need to build trust and understanding between public and private players for truly effective partnerships. This is where organizations such as the World Bank’s 2030 Water Resources Group have an important role to play in bringing various stakeholders together in an environment of trust-building.  The resultant partnerships across stakeholders have culminated in many pioneering innovations, including the first public-private partnerships for municipal wastewater treatment in the Ganga Basin; a new legal framework to accelerate pollution management and water reuse in Mongolia; and an irrigation financing facility for East Africa.

The Skandinaviska Enskilda Banken (SEB) is also working to bridge the gap between the public and private sectors, with collaboration at the heart of its investments. SEB believes it is important for all parties to share information and learn from each other in order to understand the material and perceived risks involved, and ensure water projects are bankable. As proof of this commitment, SEB set up a dedicated team this summer to identify such gaps and outline bridging strategies, marking the start for a new level of engagement.   

2.      Understanding that companies bring more than just money to the table

In the context of high levels of non-revenue water, low levels of access, and the lack of financially viable projects and creditworthy utilities, the private sector’s support must go beyond committing financial resources alone. There is significant scope for companies to help professionalize the sector, bringing essential expertise, innovation, and the ability to absorb risk.

As noted in the World Bank Group’s Scaling Up Finance for Water report, companies play a vital role in driving technological innovation and digitalization, and performance-based management and delivery of water infrastructure and services.

Microsoft, for example, is working with municipalities to identify leaks and reduce water losses using AI-powered technology. This type of innovation is groundbreaking, given that nearly a third of the world’s piped water is lost, mostly through leaks, before it reaches the people who need it. Microsoft itself, a company reliant on water for its operations, has committed to becoming water positive by 2030.

3.      Unlocking fit-for-purpose financing

Diverse needs and water goals across the globe require a diverse set of financing instruments. There are a range of options available, from blended finance, PPPs and concessions, to new types of green bonds, impact investments, and risk-sharing facilities.

Identifying the right financing solution necessitates balancing bankability with affordability. This is possible through hybrid models which combine both public and private capital, along with the strategic use of guarantees for de-risking. Strengthening the interlinkages of the water sector with other sectors (e.g., renewable energy use and energy efficiency, resource recovery, ecosystem services, and landscape management) can also improve the business case for water sector investments.

An example of innovative financing highlighted during the discussion was the AS Samra wastewater treatment project in Jordan, one of the most water-scarce countries on the planet. A blended financing package — consisting of grants from donors, government funding, equity investments, commercial debt from the private sector, and MIGA’s non-commercial risk guarantee — supported an increase in Jordan’s wastewater treatment capacity while introducing renewable energy solutions and reusing treated wastewater for irrigation and agriculture development.

Collaboration is the key

Unlocking financing requires a combination of stakeholders to come together — public and private players, development partners, and importantly, communities.

We can only close the water gap when we address the financing gap together.