COVID-19 has created a worldwide need for constant hand-washing, and that has cast a spotlight on the importance of access to clean water. The pandemic has also underscored the lack of investor interest and bankable projects for achieving a key United Nations goal on water sanitation.

The U.N. launched its 17 Sustainable Development Goals, known as the SDGs, in 2015 with an aim to create a safer, more prosperous planet by eradicating poverty, eliminating hunger and providing clean water and sanitation worldwide by 2030. Experts say the water goal is the most important as it has an impact all the other SDGs — especially climate — but lack of financing and awareness are hindering progress.

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In July, the U.N. announced it was accelerating plans to achieve its 2030 water objective because of the slow progress in achieving the goal. A 2019 report by the Organisation for Economic Co-operation and Development found that providing safe drinking water for all by 2030 would require annual financing of about $114 billion — approximately three times current investment levels.

"COVID has made it even more clear that access to safe water and sanitation is an absolute must," said Vedika Bhandarkar, chief global impact officer at nonprofit Water.org, which works with banks to provide micro funding for water projects in Asia, Africa and Latin America. "But how can you wash your hands if you don't have access to water?"

'Tiny' investor interest

But experts say investor interest in water is very limited. Water.org spun off a water-focused asset management firm called Water Equity, which has more than $60 million assets under management and is in the process of raising its third fund of $150 million, Bhandarkar said.

"As Water Equity speaks to more and more investors, the interest in the water space is still tiny and the assets deployed toward the sector are really, really small," she said.

Bhandarkar suggested that a blend of public and private finance could help address the funding gap for water projects. Instruments like green bonds, which are debt for financing environmentally-friendly projects, could also play a key role in financing water projects, she said.

According to the Climate Bonds Initiative, which promotes green bond issuance, clean water and sanitation projects based on the U.N.'s water SDG account for about 11% of green bond issuance.

The World Bank has issued a number of SDG water-related bonds, starting with a one billion Swedish kronor seven-year sustainable development bond in August 2018, while the European Investment Bank, the EU's financing arm, has launched a new financial instrument called a Sustainability Awareness Bond that is designed to meet the SDGs. The EIB issued the first, a €500 million bond designed for water projects, in 2018. In 2019 it invested €2.4 billion in the water sector.

Few 'bankable projects'

Many countries have "dire need" for water investments, said Marco Beros, senior water expert at the EIB's water management division. But at present there is a lack investable projects.

"There is a lot of funding available, there is a lot of goodwill available, but there are not enough bankable projects and it takes years to prepare those," Beros said. "We are really lacking market plans, government plans, feasibility studies, cost benefit analyses."

The EIB can only finance 50% of its water investments, according to its statutes, and EU-based projects will usually be funded by commercial or national state banks. Outside the EU, the EIB co-finances projects with development banks. For example, it is currently working on a 10-year program with the Asian Development Bank in the capital of Mongolia, Ulaanbaatar, to provide clean water and sanitation as well as health and road infrastructure for traditional communities that live in yurts.

The EIB takes a long-term approach to its water investments, making sure its projects are viable over the long term and resilient to climate change.

"If we fund infrastructure that is not sustainable then it cannot play the role intended and we cannot achieve the SDGs," Beros said. "If we finance a water treatment plant or wells to supply water to 20,000 people in a developing country and five years later these walls fall dry then we don't achieve anything."

Water and climate change are closely linked. Water consumes 7% of the world's electricity and in regions affected by drought that proportion is much higher, according to Sean Kidney, CEO of the Climate Bonds Initiative. For example, 17% of California's electricity is used to pump water around the state.

"We don't think you should be dealing with water unless you are dealing with adaptation," he said.

Water development programs need to become savvier about raising money on capital markets to finance water projects, he said, and water projects, especially those in big cities, need to consider potentially charging customers in the future to ensure the long-term quality of their services.

"We need to be designing water infrastructure up front with an eye toward revenue streams and a consumer relationship rather than just building it," Kidney said.

As of Aug. 24, US$1 was equivalent to 8.79 Swedish kronor.