EVOLUTION OF A PIONEERING APPROACH: THE WORLD SANITATION FINANCING FACILITY
by Marta Maretich
The World Sanitation Financing Facility (WSFF) started life as a timely idea. Born out of a conversation between Arthur Wood, then global head of Ashoka’s social financial services, Jack Sim, founder of the World Toilet Association and World Toilet Day, and Dr Guy Hutton, the leading Sanitation Economist for the World Bank’s Water and Sanitation Program (WSP), it came into being just as the wave of interest in social benefit investing was gaining momentum.
The WSFF’s aims were ambitious from the beginning. It sought to advance the practice of social finance and nurture a multi-stakeholder, outcome-oriented approach across an entire sector of social benefit. The idea was to try new approaches on one sector and use the lessons to build models that could be used in any sector. The choice of sanitation as a focus for this groundbreaking work was strategic.
“I was interested in sanitation for a number of reasons,” Wood recalls. “Chief among those was that sanitation is a very large sector and it impacts on a whole range of other issues – water, environment, health, women, education, children. It’s seriously under-funded. Only one dollar in twelve of the money spent on water and sanitation combined actually goes toward sanitation. To be honest we hoped that would make people in the sector more open to trying new approaches.”
Sanitation was also a Millennium Development Goal (MDG) target, which connected the WSFF’s work to a broader international agenda. Its MDG status provided an additional benefit: Sanitation came with a single, authoritative data set. “The WHO/UNICEF Joint Monitoring Programme (JMP) for Water Supply and Sanitation linked to the work of WSP (World Bank),”says Wood. “It gave us a standard data source with a high degree of consensus in terms of the metrics and the identification of externalities. That’s rare, if not unique, in the world of social benefit.”
MORE THAN A TALKING SHOP
The WSFF began by convening a wide range of players including governmental and non-governmental organizations, aid agencies, charities, legal firms, utilities and funders. Fostering collaboration and innovation lay the heart of its mission. “Despite the rhetoric,” says Wood, “these agents were still working in silos.” The idea was to provide the scattered players with a common platform where they could meet and exchange ideas.
But the WSFF was designed to be more than just a talking shop. Part of its purpose was to advance the work of market building in the area of social investment. The founders knew that sanitation offered an opportunity to tap into an emerging global market of huge proportions and that it had the potential to be profitable financially and economically. In a recent post for the World Bank, Dr. Guy Hutton placed the economic cost of poor sanitation and water supply at $260 billion annually in developing countries, or 1.5% of their GDP. He puts the total economic benefit of meeting the MDG target for sanitation at $54 billion annually.
“Not only does lack of sanitation cost societies,” says Wood. “We are missing the opportunity to use waste as a resource. Human waste could potentially be one of the largest carbon markets if turned into fuel or it could be developed into fertilizer.” The WSFF’s founders saw that deficiencies in the social investment market were holding back both sanitation investment and progress.
To help develop the market, Wood and the others came up with a two-pronged approach. First, the WSFF would commission a wide-ranging study into the global sanitation market conducted by a leading consultancy firm, McKinsey and Company. The purpose was to establish a framework, a fact-base and a set of metrics that all sector players could use to coordinate interventions and develop new collaborative approaches. Second, the WSFF would work toward establishing the sort of financial and legal models that would facilitate the kind of collaboration and coordination they envisaged.
The WSFF was launched in 2009. Heavy hitters like the Water and Sanitation Program at the World Bank, UNICEF’s Water Sanitation and Hygiene Section, the Water Supply and Sanitation Collaborative Council came on board along with many other citizen sector players including Ashoka and UBS Philanthropy. Full WSFF steering group. Now, four years on, what has come of this ground-breaking working group?
THE SECTOR CATCHES UP
The social finance sector has come a long way since 2009. Public awareness and acceptance of new methods of financing social benefit has risen markedly. New kinds of players are coming into the sector every day and these agents are experimenting with hybrid legal models. Convergence, collaboration and co-investment are buzzwords. Many agents (like Maximpact) are making efforts to find ways to unite the disparate parts of the sector and get them working and investing together.
There’s also a growing recognition of the need for new legal and regulatory models to facilitate these multi-stakeholder approaches and some, like the L3C and the BCorp have emerged. Recent studies, notably by the Omidyar Network, have advocated adopting a whole-sector approach to building social investment markets. In brief, the maturing sector has come around to seeing things the WSFF way and many of its tenets are gaining traction.
Yet for the WSFF itself, success has been mixed. In the end no funder came forward to back the crucial market research into the sanitation sector. “This was the height of the financial crisis,” remembers Wood. “Still, I was surprised. Here we had a large-scale project with the business case done by a top-flight consultancy firm, headed by two thought leaders, with most of the major players from across the value chain and an offer of hosting by the UN. I thought the foundation world would be convinced by that and pick it up. Perhaps I was na’ve.”
The lack of follow-through by funders meant the WSFF research project was stalled in its tracks. However other parts of its agenda have gained ground, largely carried forward by Wood.
He has been instrumental in developing the social impact bond, now seen as an important tool for collaborative social investors. “My thinking about how you scale social impact bonds and the move to outcome models was birthed inside the WSFF,” says Wood. “It provided an answer to the question of how you bring the partners together.” Wood has also been at the forefront in developing new collaborative legal structures such as the SELLP and the L3C. In 2011 he participated in creating the Hague Framework, a report that echoed many core WSFF themes, including the urgent need for social investment and the necessity of creating collaborative outcome-oriented structures.
In the meantime Wood has helped fulfil another WSFF aspiration by founding, along with his US partners, Total Impact Advisors, a new kind of social finance intermediary. He explains, “There are lots of innovative social entrepreneurs; they’re great, brilliant, dedicated passionate people. They’re specialists in the things they do but they’re not finance specialists. Someone needs to look out for their interests. We believe that there needs to be a new kind of financial intermediary in the marketplace, one that understands what blended value is and actually has the expertise in blending different sorts of capital.”
WHAT’S NEXT FOR THE WSFF?
Throughout all this activity, Wood hasn’t abandoned his hope of bringing progress to the sanitation sector. “It’s a labor of love,” he says. And it continues: He has recently collaborated on a paper with Dr. Guy Hutton: Impact Investing and Outcome Models. “It’s an attempt to demonstrate the collaborative model of the WSFF and the opportunities of impact investing and the move to outcome models using sanitation as a test case.” The paper will be published through UNESCAP.
What Wood would most like to see at this point is a practical project that puts WSFF ideas to the test. “I’d like a chance to prove the effectiveness of a collaborative outcome model in the real world,” he says. “I’d love to see one of the major multinational organizations take leadership of it. Foundations, too, could accept more of a leadership role. The danger,” he warns, “is that if the social sector doesn’t take the lead in defining these models and processes, other stakeholders in the commercial sector will do it. Then how do we ensure that social mission is hard-wired in?”
So far, no such leader has come forward. Meanwhile, the world sanitation crisis continues. The MDG target for sanitation will not be reached by 2015, according to the latest monitoring figures. Sanitation coverage is only predicted to be 67% by the deadline, leaving 580 million people without adequate provision. An estimated 30-50 million children will die from diarrheal disease as a result. Perhaps it’s time the sector tried a new approach.