Road to COP28 – IFC’s Wisdom on Water

Welcome to IFC Audio Stories. I'm your host, Lindy Mtongana. 

COP28 - the world's biggest decision-making forum on climate issues is set to begin in Dubai in a matter of days. IFC Audio Stories brings you a quick, informative glimpse into IFC’s key initiatives for the summit. Today, our spotlight is on Water and I’m in conversation with Rogerio Pilotto, Senior Investment Officer in IFC’s Global Water team. 

Lindy: Rogerio, we often hear this phrase Water is life. Can you explain what that means for you when we think about how important water is, to the achievement of the Sustainable Development Goals. 

Rogerio: Water is essential for life and economic development. Therefore, it is only natural that all the SDGs - the Sustainable Development Goals are connected to water. Food security depends on availability of water for irrigation. Economic growth depends on water needed in the manufacturing, mining and power generation processes. Treatment of wastewater is critical for health in cities and for biodiversity. If we fail on water, we will fail on all the key aspects of human life.

Lindy: When it comes to water, that's SDG goal number six - to ensure access to safe water and sanitation for all - it's clear that the public sector alone can't achieve this. But yet it seems the private sector is reluctant to engage in water investments compared with renewable energy, for instance. Why is this the case? What are the key risks and challenges? 

Rogerio: So yes, we often hear about the private sector being reluctant. But that is not the reality that we see when we talk to private companies. They are eager to find projects, even in the most challenging countries. We see projects being tendered with very aggressive bids. There is fierce competition. The private sector is keen to see more well-structured projects coming to market. The problem is that bankable investment opportunities in the water sector, in emerging markets are hard to find. Key risks often include bankrupt public utilities, tariffs below cost recovery, inadequate regulation, and government's unwillingness or lack of expertise to structure bankable projects.

Lindy: What's less spoken about when we talk about water is sewage. So Rogerio, talk us through some of the barriers that exist in trying to achieve improved sewerage coverage.

Rogerio: Sewage collection and treatment is more of a common good. There is often a lower perception of direct benefit than what people have with water supply. As a consequence, people's willingness to pay for sewage sewer service is lower. They don't realize that to live in cities, it is critical to have their sewage taken away. They may not see where their sewage goes, while their neighbors that live near creeks see and smell the sewage every day. Also, after sewage is collected and taken away, it needs to be treated to preserve the rivers and lakes, as well as groundwater, which are all important resources.

Lindy: Can you give us an example of the development impact of IFC’s investment approach in the water sector in emerging markets? 

Rogerio: Sure. We supported the cleanup of the Pinheiros River in San Paolo through multiple projects, leading to enormous environmental and social benefits. Our key action was to connect more than 3 million people to the sewage network. The population saw the benefit through elimination of sewage smell, and reduced risk of diseases, particularly during floods. Interestingly, a good part of the population was happy to pay for water and sanitation services, not only because of the service itself, but also because of the water bill served for them as a proof of resident, which can be a game changer for social and financial inclusion. It helps them get credit at stores and at banks. The environmental benefits of these projects were enormous. Fish have already been seen in the river again, and a beer company opened a temporary floating bar in the river to showcase the recovery. Drinking a beer or even food there before would be unbearable. That's incredible.  

Lindy: For sure, let's look to the future. Now, what are some of the key areas of focus for IFC as we look at future endeavors in the water sector? 

Rogerio: Our job at IFC is to support commercial, commercially viable water companies and projects. Through our initiative, utilities for climate or U4C we help companies address their most critical challenges, such as reducing non-revenue water, adopting new technologies, and improving their sustainability approach. Our advisory team helps governments and state-owned companies develop bankable projects. On the investment side, we also work to develop projects from a very  early stage. We are agnostic on working with the private or public water companies. In fact, most of our current portfolio is with public companies. The critical item for us is that projects need to be financially sustainable. 

Lindy: Considering IFCS approach IFCS initiatives, what do you hope is accomplished at COP 28. 

Rogerio: We hope COP28 will be seen as a call for action for additional concessional financing and guarantees. These are instruments that can make commercial investments viable. It is unacceptable that the water sector is lagging power and telecom sectors by so much in terms of coverage and service. Learning the lessons from these other sectors will require governments to be willing to engage in a way that will be conducive to attracting capital. So development finance needs to be shifted to instruments that help commercial attractiveness, such as viability gap funding and guarantees. This means don't finance a water treatment plant with public funding, use public funding only to reduce the investment needed to a point where it is commercially viable, so that the investment can be remunerated with the revenues that it generates. In the poorest areas, this will require a lot of concessional funding. So there is a call to donors also. The vision is to have companies, public or private, that are efficiently run and operate on a commercial basis. Then you combine that with smart use of public money, concessional financing, and private financing to achieve scale. All of this will lead us to our ultimate goal of improved water and sanitation services with affordable tariffs.

Lindy: Thank you so much Rogerio 

Rogerio: Thank you Lindy. 

Lindy: That’s where we leave it for today. Remember to visit ifc.org to learn more about how IFC is addressing climate change as the WBG doubles down efforts to end poverty on a livable planet. 

I’m Lindy Mtongana, thanks for listening.