Halfway through the 2030 Sustainable Development Goal (SDG) agenda, progress toward Goal 6—clean water and sanitation for all—is off track. Over two billion people around the world lack access to safe drinking water, and half the world’s population is expected to face water insecurity as early as 2025.
Limited water supply perpetuates economic inequality. Rural populations, as well as women and children, often suffer disproportionately due to high costs of investing in water sanitation infrastructures and significant time spent on daily trips to collect safe water. The lack of proper water management infrastructure and appropriate sanitation, storage, and delivery methods create poor living conditions and cause deaths from preventable diseases due to contaminated water. These challenges are only getting more difficult to manage due to the effects of climate change.
More effort—and especially more capital—is needed.
This is where the private sector has an important role to play and where the new Water Access Acceleration Fund (W2AF) comes in.
As the first private equity initiative in the water sector, W2AF aims to catalyze growth by demonstrating the financial viability of the safe drinking water market worldwide. Managed by Incofin Investment Management, it will scale access to affordable and safe drinking water by investing in innovative, early-to-growth stage businesses across the water access value chain.
In 2021, USAID INVEST first partnered with Incofin to mobilize capital for the EUR €50 million fund. Through INVEST, USAID provided $760,000 in concessional and catalytic funding to enable a first-loss tranche, reducing risk to attract investors.
With this support, W2AF officially launched in February 2023 with public and private funding commitments totaling EUR €36 million from Danone, BNP Paribas, international foundation Aqua for All, and development finance institutions (DFIs) including the U.S. International Development Finance Corporation, Norfund, and Danish Investment Fund for Developing Countries (IFU).
W2AF is filling an important gap in market growth. Most investors indirectly fund through microfinance institutions, donors tend to back large infrastructure projects, and venture capitalists focus on innovative technology, W2AF helps to scale companies with proven business models and technologies. Ultimately, this blended finance fund aims to provide 30 million people across Asia and Africa with safe and affordable drinking water by 2030.
The success of W2AF so far shows the potential for blended finance to attract commercial investment to the development sector and contribute to sustainable development goals. Over the course of W2AF’s development and since the fund launch, USAID INVEST and Incofin gained insight into how to make blended finance work, even in a challenging sector like water.
Many investors see the water sector as a risky investment, heavily regulated and highly vulnerable to environmental risks, both of which can undermine financial performance.
Through W2AF, Incofin worked with private investors to identify financially sustainable business models for the water sector poised for growth. Models include delivery of safely treated drinking water through storefronts or home delivery; a regional-level pipe network connects households directly to a central treatment unit; and safe drinking water technology such as purification technologies or monitoring systems.
These business models aren’t mutually exclusive, and can complement each other, meeting the requirements of even the more risk-averse investors.
Blended finance can bridge the gap between commercial investment and development goals by de-risking investment for private sector players in impact-oriented funds. In this case, the concessional capital from USAID made investors more likely to invest in the fund.
It also helped de-risk the investment not for the DFIs. This allowed Incofin to increase the target size of the fund’s first close from EUR €25 million to EUR €36 million.
Incofin’s on-the-ground presence in India, Cambodia, and Kenya was key to identifying opportunities and giving comfort to investors. It allowed the W2AF team to establish strong relationships with partners and clients, understand the unique needs and challenges in each market, and ultimately source and vet high-quality investment opportunities.
Ultimately, these efforts resulted in a pipeline of over 180 opportunities, with three deals progressing to an advanced stage.
Impact measurement and management (IMM) is inherently challenging. The W2AF team translated the fund’s SDG targets into concrete and measurable output and outcome indicators, with an emphasis on gender and climate. This includes measurements like hours saved from not having to fetch water far from the home as well as progress toward SDG 6.
As early progress made by W2AF has demonstrated, blended finance is a critical tool in achieving universal access to water and paving the way for additional investors to crowd into the sector.
“We are proving that the drinking water sector is investment-ready,” said Dina Pons, Incofin Managing Partner and W2AF Relationship Manager. “We are immensely thankful for our partnership with the USAID. Thanks to their contribution of catalytic concessional capital, we were able to mobilize capital from private players. Now that the first close of the Fund is behind us, we are confident that we can provide 20 billion liters of safe drinking water to 30 million people by 2030.”
Learn more in the Incofin Water Access Acceleration Fund: Lessons Learned Report.