Private impact investors can help improve America’s drinking water, wastewater and stormwater systems, advancing health and equity.
EPIC has released a report outlining ways that philanthropies and other impact investors can advance water, health and equity through strategic investments. Co-Authored by Margaret Bowman, Dr. Jalonne L. White-Newsome, Miljana Vujosevic, Jessica Mahr, and Dr. Timothy Male, this report will enable foundations and impact investors to learn about potential investment strategies that can advance solutions at the intersection of sustainable water, equity and health.
Thousands of American drinking water, wastewater and stormwater systems haven’t gotten the level of attention and investment needed over recent decades. This has resulted in a lack of access to safe drinking water or sewage treatment in some places, and in others unaffordable water supply, sewage overflows and flooded streets. The failures of our water systems prevent all Americans, especially lower income and historically marginalized Americans, from having the healthy and prosperous lives they deserve.
In addition to government and water utility efforts to address these issues, there are opportunities for impact investors from the philanthropy sector to align both return-seeking investment strategies and grantmaking strategies to use their smaller but more flexible private investments to leverage larger public investments.
Two circumstances are combining to create these opportunities:
First, the water sector is becoming more innovative. Generally hesitant to try new approaches, leading water utilities have recognized the need for innovation to address aging infrastructure, climate change and historic racial inequities. A wave of leadership retirements across the sector are also creating an opportunity for new diverse and innovative leadership. Non-profits, including the US Water Alliance, Rural Community Assistance Partnership, Moonshot Missions, EPIC and others are sparking and responding to this interest to build a movement of change.
Second, federal infrastructure financing is increasing, both with stimulus funding and with the Infrastructure Investment and Jobs Act of 2021. The federal Justice40 initiative creates incentives for this new financing to be allocated to historically marginalized communities. Because the bulk of water infrastructure is funded through low interest federal financing and municipal bonds, the catalytic role for impact investors is to help unlock these larger sources of capital for equitable and climate resilient projects. Investors can create significant leverage if they use their investment and grant resources to help direct federal funding to equitable and climate resilient projects.
The report’s top recommendations to philanthropies:
Make an allocation to early-stage tech companies in the water arena. There are promising opportunities to invest in technology companies that are creating data tools to address transparency or building software and hardware to fill operational needs of utilities and otherwise advance water, health and equity. Investing directly in early-stage companies is where impact investors can be most catalytic and help new ideas take root. Impact investors can also deploy capital through a water-focused investment fund, or they can partner with an accelerator to encourage companies to apply that are aligned with equity, health and water criteria.
Invest in intermediaries to unlock larger public funding sources for sustainable projects in historically marginalized communities. Water utilities have recently expanded sources of low-cost financing available, including federal infrastructure funding and bond financing. But availability and access are not the same thing. Impact investments through financing intermediaries are needed to provide smaller and/or historically marginalized communities predevelopment loans and other bridge financing that will help them access federal low cost financing for sustainable infrastructure projects.
Establish a municipal bond strategy. The municipal bond market is another ripe opportunity for investment. An impact investor can partner with an existing fixed income manager that has a track record of sustainable bond portfolios, or can pursue smaller, more innovative forms of bond issuances.
These three recommendations offer strategies for impact investors to support and finance improvements in water infrastructure today. Other recommendations detailed in the report include strategies to use grantmaking or below market loans to support the development of projects in a pre-investment stage that could be investable in a few years.
Globally, the impact investment market exceeds $700 billon today, the majority of which is centered on investments in the United States. Even if only a small fraction of investment activity is directed at improving water infrastructure, it can have a profound effect on communities across the country who need help to build a better water future.
