Goal 6: Clean water and sanitation
Billions of people have gained access to improved water sources and sanitation since 1990 and by 2015, over 70 percent of the world’s population was estimated to have access to safely managed drinking water. Yet, less than 40 percent of the world’s population used a safely managed sanitation service. Of the 2.3 billion people who still lacked a basic sanitation service, nearly 900 million resorted to open defecation. Access to safe water and sanitation are human rights, implying that states have the obligation to realize these rights by devoting the maximum available resources to their fulfilment. The health impact of poor people’s lack of access to basic services is immense, with infections and diarrhoeal diseases caused by poor hygiene, water and sanitation particularly affecting young children.
Most of the water resources used by society are needed to produce food and other goods and services. Growing consumption patterns and populations mean that water resources will be increasingly under threat. Two thirds of the world’s population live in areas that already experience water scarcity for at least one month per year. Over 500 million people live in areas where water consumption exceeds the locally renewable resources by a factor of two. These areas are highly dependent on expensive water transfers and water production from low-quality or saline resources. Recycling of water is a solution that is increasingly resorted to.
The appropriate treatment (and use) of wastewater, and preserving functioning water- related ecosystems is of the utmost importance for protecting the world’s water resources. The proportion of wastewater treated varies across the globe, estimated to range from 70 percent in high-income settings to 8 percent in low-income countries. In total, some 80 percent of wastewater in the world is estimated to be released into the environment without adequate treatment. Resorting to “nature-based solutions” can enhance the environmental sustainability of current infrastructure investments.
Financing Clean Water and Sanitation
The returns to investing in water and sanitation are high, estimated at US$4.3 for every dollar invested, thanks to reduced health costs and greater productivity and participation in the workplace. However, safely managed water and sanitation services for all require a tripling of current investments. The cost of providing universal water and sanitation services is estimated at US$114 billion a year. Some US$28.4 billion per year is needed to extend basic water and sanitation services to the unserved by 2030, which could be achieved by targeting current investments to those that are not served.
The most important funding source for investing in drinking water and sanitation services consists of household contributions, via tariffs paid to service providers and via self-supply (meaning that they arrange for their water and sanitation in the community or at the household level). The second most important source is government funding from taxes or repayable loans. Third comes transfers from external sources like overseas development assistance (ODA) and charitable funds. ODA disbursements in the water sector totalled about US$7.4 billion in 2015. A summary of external support agencies is provided by the UN-Water Global Analysis and Assessment of Sanitation and Drinking-water (GLAAS).
While the poorest countries rely heavily on ODA, this is far from enough to fund their water and sanitation needs; countries will need to raise more from domestic resources. Domestic resources are mostly determined by the tariffs paid for water services. Where tariffs charged are below the cost of providing the services, financial sustainability is undermined. On the other hand, affordability for low-income households is an issue, particularly where access to public water supply is restricted. The cost charged for informal water supply services, e.g. in slum areas, may be many times higher than (sometimes subsidized) public water tariffs. In such settings, poor people pay more than the wealthy, for a lower-quality service.
Private financing can be provided through microcredit platforms offering affordable loans to poor households to fund self-supply solutions such as community wells and toilet facilities. Impact investing is similarly funding social enterprises that provide affordable water and sanitation solutions for poor consumers. More traditional private investment takes the form of equity and loan financing to private utility companies extending services in poor and remote areas.
Beyond capital investments, public regulations and governance systems play a critical role. This goes beyond the provision of direct services and involves coordination, capacity development and coherent rules for the sectors. For example, ways to levy taxes on renewable natural capital might be explored as a means to incentivize more sustainable water use.
Financing Solutions for SDG 6
The solutions listed below provide a wide range of finance options to significantly increase resources that can help sustain investments in water and sanitation. These reviews do not however constitute an exhaustive or comprehensive list of financing options for SDG 6.
Carbon markets aim to reduce greenhouse gas emissions cost-effectively by setting limits on emissions and enabling the trading of emission units.
Market mechanisms that enable entities, for which the cost of reducing emissions is high, to pay low-cost emitters for carbon credits that they can use to meet emission-reduction obligations.
Approach for projects, organizations, entrepreneurs, and startups to raise money for their causes from multiple individual donors or investors.
Bonds where proceeds are invested exclusively in projects that generate climate or other environmental benefits.
Investments made with the intention to generate a measurable social and environmental impact alongside a financial return.
Governments and civil society use lotteries to raise funds for benevolent purposes such as education, health, and nature conservation.
Payments for ecosystem services (PES) occur when a beneficiary or user of an ecosystem service makes a direct or indirect payment to the provider of that service.
Guarantees can mobilize and leverage commercial financing by mitigating and/or protecting risks, notably commercial default or political risks.
Private unrequited transfers sent from abroad to families and communities in a worker's country of origin.
A public-private partnership that allows private (impact) investors to upfront capital for public projects that deliver social and environmental outcomes in exchange for a financial interest.
Any fee, charge or tax charged on the extraction and/or use of renewable natural capital (e.g. timber or water).
Standards applicable to the financial sector that capture good practices and encourage the achievement and monitoring of social and environmental outcomes.