The "The future we want" Rio+20 outcome document, of the United Nations Conference on Sustainable Development, recognizes the need for significant mobilization of resources from a variety of sources and the effective use of financing, in order to promote sustainable development. It calls on all countries to prioritize sustainable development in the allocation of resources in accordance with national priorities and needs, and recognizes the crucial importance of enhancing financial support from all sources for sustainable development for all countries, in particular developing countries. It recognizes the importance of international, regional and national financial mechanisms, including those accessible to sub-national and local authorities, to the implementation of sustainable development programmes, and calls for their strengthening and implementation. New partnerships and innovative sources of financing can play a role in complementing sources of financing for sustainable development. Their further exploration and use is encouraged, alongside the traditional tools for implementation.

Investments in water infrastructure, in both its physical and natural assets, can be a driver of growth and the key to poverty reduction (Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication. UNEP, 2011). Although the recent global economic crisis set back investment in water in many countries (The Global Financial and Economic Crisis and the Water Sector. Winpenny et al., 2009), the impacts have been varied and some governments have made determined efforts to compensate through counter-cyclical fiscal measures. Approximately 20% of the $2 trillion of economic stimulus packages announced since 2008 are estimated to have been in “green” investments in renewable energy, energy efficiency, more efficient use of materials, clean technology, waste mitigation, and sustainable use and restoration of ecosystems and biodiversity. Water is one of the beneficiaries of these programmes, although its full importance has not been recognised.

UNEP has made an assessment that, under a green investment scenario, the additional investment needed in the water sector would be US$ 191 billion per year until 2030 and US$ 311 billion per year until 2050 (mainly to supply water and sanitation services and meet MDGs and universal coverage). “The Africa Infrastructure Country Diagnostics” (AICD) estimates that US$ 22 billion per year (approximately 3.3% of Africa's GDP) is the amount required to attain the water and sanitation MDG targets. These estimates, which are based on minimum acceptable asset standards, include an annual capital expenditure of US$ 15 billion and operating expenditures of around US$ 7 million. These figures do not include the cost of investment in hydropower or irrigation.

According to Euromoney, the global water industry is currently a $460 billion market (Citi Group Global Markets). The assets of funds focused on water and specialist water funds nearly doubled from just over $12 billion in 2010 to nearly $24 billion in 2011, according to data from Lipper, a Thomson Reuters service, analysts believe that could reach $50 billion by 2015. The size of the water market is estimated to be US$500 billion per year and growing by 6% annually (Pictet’s water fund in Zurich).

Effective financing for water, sanitation and hygiene (WASH) is essential to accelerate and sustain services that could ultimately save two million lives per year. Inadequate monitoring and limited availability of financial data impede the ability of countries to assess progress and improve performance. An internationally agreed standard methodology for tracking financial flows to WASH at the national level does not exist at present. Attempts to undertake global reporting and monitoring, including through the UN-Water Global Analysis and Assessment of Sanitation and Drinking-Water (GLAAS) in 2008, 2010 and 2012, have not been fully satisfactory and do not provide sufficiently robust evidence for policy-making at the national level.

Economic Instruments (EIs) have an essential role to play in providing the proper incentives to guarantee that human decisions concerned with water. EIs are means to encourage sustainable consumption and production, to mobilise investments in capital and technology towards sustainable activities and to provide adequate incentives and support to innovation.

While national circumstances will differ, putting a price on pollution or on the over-exploitation of water sources – through mechanisms such as prices or tradable permit systems – could be a central element of the policy mix. In addition, increased use of environmental and water scarcity taxes can play a role in green fiscal reforms offering an attractive alternative to higher taxes on labour or capital income or deep cuts in public expenditure and public debt. However, not every situation lends itself to market instruments. In certain cases, well-designed regulation, active technology-support policies and voluntary approaches may be more appropriate or an important complement to market instruments. In addition, the responsiveness of businesses and consumers to price signals can, in many situations, be strengthened through information-based measures that highlight the consequences of environmental damage caused by specific activities and the availability of cleaner alternatives.

>> Financing and economic instruments: key tools and lessons learnt from implementation

>> Economic and Financial Instruments for the Implementation of the water-related Sustainable Development Goals