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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast, where Esther and I take you inside the environmental, social and governance issues that are shaping the rapidly evolving sustainability landscape.

Today is World Water Day. Every year since 1993, the United Nations has observed this occasion on March 22 to bring focus to the importance of freshwater. And it's also to support the achievement of the UN Sustainable Development Goal, or SDG 6, and that's water and sanitation for all by 2030.

Access to water is a human right, but it's one that billions of people around the world lack. An estimated 2.2 billion people worldwide don't have access to safely managed drinking water. Approximately 4.2 billion people lack safe sanitation services and about 3 billion people don't have access to basic hand washing facilities. Those figures are according to the United Nations Children's Fund or UNICEF and the World Health Organization.

Esther Whieldon: And then let's talk about the intersection of water and climate change. Competition for natural resources, such as water is likely to increase as climate change leads to freshwater scarcity in more parts of the world and intensifies in areas where water is already limited.

And then there are the business implications. Climate change will have financial impacts for companies across sectors due to climate hazards like water stress, flooding and drought. And that's according to research we recently published using S&P Global Sustainable1 physical risk data. And will include a link to that in our share notes in case you'd like to read more.

Lindsey Hall: So clearly, there's a long way to go to solve these big problems. And in addition to the challenges, there's also opportunities to find solutions because as we'll hear from today's guest, even though these challenges are huge, they're also inherently solvable. I'm going to let our guest introduce himself.

Gary White: I'm Gary White. I'm the CEO and Co-Founder of Water.org and WaterEquity, and we focus on the intersection of water sanitation and finance for low-income populations around the world.

Lindsey Hall: You may have heard Gary made a brief appearance in our episode last year where we covered the intersection of water and climate at the UN's COP28 Climate Change Conference in Dubai. But more likely, you've seen Gary on panels and giving talks with his co-founder, Matt Damon.

Esther Whieldon: Wait, you mean Good Will Hunting Matt Damon?

Lindsey Hall: Yes, that is the one. So Gary and Matt co-founded the nonprofit Water.org in 2009. And then later, when they found that lenders didn't have sufficient money to meet borrower demand for water and sanitation solutions, they formed WaterEquity, and this is an impact investment manager dedicated to solving the global water crisis, more on both of these organizations later.

Lindsey Hall: First up, I asked Gary to give our listeners a lay of the land. What exactly are the water challenges facing the world?

Gary White: At the household level, the challenge is the concept of being able to access affordable financing so that they can get the solutions that they need. And the challenge is that people are often paying for water already. In Mumbai, India, for instance. If you're relying on one of these tanker trucks or informal vendors, you're paying about 50x more per liter of water than if you're connected to the grid.

The problem is people don't have the upfront capital to be able to connect to the utility. And so they're forced into this day-to-day existence of paying a couple of dollars a day for water sometimes, but they don't have the $200 or $300 it might take to connect to the grid.

So they're kind of caught in this trap. It's just what we call "it's very expensive to be poor" because if you don't have that working capital, then you can't escape this cycle. So that's one challenge that's currently being faced literally by hundreds of millions of people around the world.

The other is climate because even as we kind of help more people get access to these services, at the same time, they risk kind of having those services pulled out from under them in terms of climate change. And we know that climate change is really about water. It's been said that if climate change is a shark, then water are the teeth. And we see this. We see it in the Horn of Africa with drought. We see it in places where there's flooding that are causing saltwater intrusion into the groundwater.

We see it in Maui, the fires there have kind of eroded the ecosystem and allowing water to sink into the water table. So we see climate as a big piece of this and adaptation and climate resilient infrastructure is what we're now focusing on with both Water.org as well as WaterEquity.

Lindsey Hall: We talked a lot on this podcast about the world's big sustainability challenges from climate change to biodiversity loss to water scarcity. And specifically, how do you get finance flowing to solutions to those challenges? I asked Gary to describe how his 2 organizations Water.org and WaterEquity go about this.

Gary White: It's a bit of a unique model in that we have these 2 organizations, which is Water.org, which raises philanthropic capital to serve the mission, and then WaterEquity, which is an asset manager, SEC-registered asset manager that focuses on raising debt and equity capital to bring to the equation and to the mission.

And so what we are able to do with philanthropic capital is to provide the technical assistance and the resources to our financial partners around the world who are microfinance institutions, sometimes larger financial institutions to help them begin lending to low-income populations so that they can meet their water and sanitation needs. And so it's all driven by demand from the households up to these financial institutions. And so that technical assistance and that training and helping them with market research, that all helps derisk the lending for these financial partners around the world. We have about 160 of those.

But what these partners also need is access to affordable kind of wholesale capital so that they can break that into many more small microloans. And so that's where WaterEquity comes in because Water.org has worked with these institutions to kind of help derisk lending for water sanitation, then that really gets the -- kind of gets the GroundCloud for WaterEquity to come in and invest and then we're able to get a financial return from those financial institutions as well as huge social impact as they loan to literally hundreds of millions of people.

Lindsey Hall: Gary mentioned the role of infrastructure in addressing many water-related problems, and I asked him to elaborate. Specifically, I wanted to know about the capital involved in water infrastructure. How do you get finance flowing to these kinds of solutions?

Gary White: What we see with the water credit program, which is what we call this program working with financial institutions to get microloans out there into the world, that bottom-up demand for services to connect to the water grid to the utility, that can now strip the supply if infrastructure isn't there to connect to. And so what we see is a lot of utilities, both public and private around the world, not having access to the capital that they need to push the infrastructure into some of these marginal neighborhoods.

And so the first 4 funds for WaterEquity, we're really focused on these microloans. And now the current fund that will close soon is focused on investing in that infrastructure. So it is climate resilient so that it can serve more people and get more people connected. So we see the need to come at this problem both from the bottom up as well as the top down. And that's the combination of Water.org and WaterEquity as the asset manager.

Lindsey Hall: So you're talking about the needs of communities and of households. Can you talk to me a little bit more as I'm trying to understand what does a business audience or what do investors, how do they come to the table if they're interested in addressing some of these issues? Like what is the role that they can play in connecting with the work that you're doing?

Gary White: Sure. So -- and I think that's an important tact to take on this because even though these challenges are immense, they're inherently solvable. We know how to make water safe. We know how to distribute it. It's not rocket science in terms of doing this, but it is about investment capital that's needed. And so we are always building out new opportunities for investors to come in, both in terms of water and climate infrastructure as well as the microfinance. And these funds, we believe, pay competitive financial returns while also helping corporations get higher ESG scores to kind of help with their water scarcity issues in some of the markets where they operate.

So we've been very fortunate to have members of the Water Resilience Coalition, which is a group of about 30 or 40 corporations that are focusing on this issue. And folks like Starbucks, Ecolab, Microsoft, DuPont, Reckitt and others invested in the last fund that we closed on microfinance institutions. And with the infrastructure fund, we see that some of those same companies would be investing in the infrastructure fund to bring a financial return to their balance sheets while also driving big social impact.

Lindsey Hall: Okay. You mentioned the role of philanthropy in there. And in our last conversation, you told me philanthropy is important, but it can't do it all on its own, and I'm paraphrasing there. So how do you think about the role of the private sector, the public sector, government in coming together to solve these big challenges?

Gary White: Yes. So it does have to be an intersection. This is an all hands on deck issue. In terms of governments and municipal infrastructure, the desire to serve more people is there, but they don't have the capital. They have a lot of demands on the capital in their countries, education, agriculture and other things. And so when they are offering concessions to private companies to come in and provide infrastructure at a reasonable cost, reasonable tariff, then that's kind of where we can work with our partners as well.

So what -- the reason philanthropy comes into this equation, it's kind of the but-for case, right? But for having that type of philanthropic capital come in to do the technical assistance to do the derisking, to help develop projects, but for that capital, investment dollars are not flowing. So that's kind of the philanthropic case for this. We need philanthropy to kind of set this market in motion. But once we do that and do it in a very thoughtful way.

And for us, it's all under one roof, right? So when we are working to derisk with Water.org, we know what it's going to take for the WaterEquity investment committee to greenlight an investment. And so what we can do is kind of tailor that approach so that it will happen. And then WaterEquity can then follow along and actually make the capital investments, the debt or equity that's required in utilities or in private companies that are serving utilities with different goods and services.

So we're really using the whole ecosystem, public sector, private sector, philanthropic capital as well as impact investing capital and blend it all together. It's not easy, but we're doing it. And I think that's the thing to take away that there are or there can be attractive projects and investments for capital providers or asset owners and asset managers, but you've got to kind of get things prepped for that so that it can work.

Lindsey Hall: Okay. I mean, in a lot of ways, it seems like a no-brainer, right, worldwide access to clean sanitary potable water. But what is the main challenge would you say? Why have we not already solved this issue?

Gary White: Yes. It's multifaceted. One is that right now, today, everybody is getting water somewhere, right? If they weren't getting water somewhere, they wouldn't live, right? The question is how much are they paying for it? And are they paying in terms of their time? Are they paying in terms of their health? Are they paying in terms of cash, like I mentioned in Mumbai, and they're paying with all that. But it somehow loses its urgency because everybody has some source of water. So it doesn't attract as much investment from government as some other areas. 

I think it's also that, yes, historically, these utilities have not been well run in many countries. And so you see an aversion for the capital markets to kind of come in and invest in these areas. And of course, that's the blockage that we're trying to clear to help these entities become more bankable. 

And frankly, you have a lot of competition for other infrastructure. If you look at infrastructure investments across the board in low-income countries, middle-income countries, investment is flowing to telecom, to roads, to railroads, airports, all of these other things, but water and sanitation only captures about 5% of that infrastructure investment that's coming in. So it hasn't been seen as a particularly high performing market for infrastructure investors. And our belief is we can turn that around because at the end of the day, water creates immense value for people living in poverty.

If they're not overpaying for it, if they're healthier because they have it and is trying to kind of capture some of that value and then translate it through those intermediaries like utilities so that things are more efficient and so that we can scale up the capital. This is a $1 trillion problem. If we're going to try to solve SDG #6, which is water and sanitation for all, then it's going to take more than $1 trillion to make that happen. And philanthropy is good, but it's never going to be enough to get water to everyone.

Lindsey Hall: Okay. You touched on this a bit, the time it takes just to get water. And I wanted to know, in addition to World Water Day in March, we also celebrated International Women's Day March 8 and women's history throughout March. And I just wanted to talk a little bit about something I know you're well aware of, the disproportionate impact of water scarcity on women. Can you talk a little bit about that?

Gary White: Yes, for sure. I mean, gathering water has historically been a job for women and for girls. And that means that women are working at more productive activities and girls are in school. And if we look at the demand for improved water sanitation services, what we see is that at WaterEquity, for instance, 90% of the borrowers for those funds at the household level are women.

And so they see how much opportunity cost and cash costs that they're putting into this. And just a quick story that kind of relates to this, a woman that I met a couple of years ago in Uganda, she was a grandmother. She just went by the name of Momma Florence. And Momma Florence had been spending hours each day. She actually had a bicycle. She would cycle around trying to find the water that she needed to carry it back in these plastic jugs. And she took out a loan from one of our local partners to put in a very simple well with a pump. And with that, she was then able to start growing more vegetables in her garden. People in her family were healthier because they were drinking better quality water and had enough water. And then she started using some of the scraps from the garden to feed these pigs that she was raising. And then she also used the water to start making bricks because she found that the soil around her house lent itself to the clay to making bricks and selling those. And then she use some of those bricks to build some small rooms that she now rents out to people in her community.

And so what you see is this was a woman entrepreneur just waiting to be born and water was the catalyst in that. So we look and we see women creating businesses around these water opportunities that happen in another group of women in India who are now making cinder blocks with the water and selling them another woman in Tanzania that I met, who like sunk one well with a loan, and then she could sell that water.

And so she went out and took out another loan from our partner to do another well and start growing a business. So it's clearly costing women right now in terms of education and time and opportunity costs, but it also can be a springboard to livelihoods for them.

Lindsey Hall: I love that you are giving us this sort of hopeful story because I wanted to end this conversation on a sort of solutions-oriented note. And I guess for those in our audience, the businesses and members of financial institutions who are hearing you talk about some of these challenges, what would you hope that their takeaway would be?

Gary White: I would hope that we can just come together as a planet and as a humanity and solve really what is right now the most basic unsolved problem for humanity, and that is simply access to something we take for granted, and that's water and sanitation. And the fact that we have models now that will show that people living in poverty will meet us halfway in terms of getting access to these loans and repaying them, by the way, at a rate of 98%.

And if we can't use the capital that we have right now to meet them halfway even though that capital can pay a financial return to investors, then that's just sad. And what we're trying to do is to kind of light a candle here and illuminate this path, and we hope others will follow and that the capital markets will respond because it's rational, but also because it's the human thing to do.

Lindsey Hall: Well, Gary, I'd love to continue this conversation, but I know you have a busy schedule. Is there anything that I haven't asked about you think is important for our audience to understand as we are celebrating World Water Day?

Gary White: I think it's just be hopeful because this is an inherently solvable problem. And there are lots of organizations that are tackling it with both philanthropy and now, as I said, with impact investing and other means. And so there's lots of on-ramps for people to get involved, and I would just encourage everybody to kind of enlist their support in solving the global water sanitation crisis in whatever way works for them.

Lindsey Hall: So we heard Gary talked today about the intersection of climate change and water. We heard about the role that different stakeholders have to play in solutions to the world's water and sanitation challenges from policymakers to philanthropists to private capital. And he ended on a hopeful note there with this idea that this is an inherently solvable problem.

Esther Whieldon: Yes. And I think that's a theme we're going to continue to hear throughout this year about how there are solutions to the big challenges we face. And we'll continue to track the ways the sustainability world is tackling water challenges. And next week, we'll be back with more coverage from S&P Global CERAWeek conference. So please stay tuned.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

Esther Whieldon: And a special thanks to our agency partner, The 199. See you next time.

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