Pressure mounts on World Bank to stop private water firm investments

A month in SRI with Roger Aitken...

Nestlé’s former ceo Peter Brabeck-Letmathe once sparked controversy after declaring that access to water was “not a public right”.

This year current Nestlé ceo Paul Bulcke stated that future water scarcity represented a great threat to the food industry. And, with 2.5bn people globally today having inadequate water supplies according to the World Health Organisation, the role of the World Bank as regards water improvements globally would seem pivotal.

Against this backdrop the bank came in for renewed criticism this October from Corporate Accountability International (CAI), a Boston-based advocacy group. It ramped up calls for the World Bank to stop investing in water firms.

CAI’s move followed a 64-page report it published in April 2012 titled ‘Shutting the Spigot on Private Water: The Case for the World Bank to Divest’, in which it presented case studies on Manila, Ghana and the Asia Water Fund, and urged the bank to divest all equity positions in private water corporations.

In a letter this September to World Bank President Jim Yong Kim the group argued the bank’s reputation and assets were “being gambled” and millions of lives “imperilled”.

The evidence appears compelling. According to the World Bank itself, 34% of all private water contracts it entered into between 2000 and 2010 – from Argentina to Vietnam – have failed or are in deep distress. As a loose proxy for the sector, MSCI Global Sustainable Water Index, posted a return of +24.45% for 2012 versus +16.54% for MSCI World.

These investments are nevertheless sizeable. The World Bank’s investment arm International Finance Corporation (IFC) invested a total of around $4bn in public sector water improvements during the 2011 fiscal year – far exceeding its $96m financing of private water sector ventures (c.7% of the bank’s total investment portfolio that year of c.$57bn). Ideologically the IFC stresses it is “not pressing one ownership” over the other.

In the case of Manila in the Philippines the IFC advised the city in 1997 to privatise its water system into two franchises – Manila Water, supplying the eastern side of the city, and Maynilad handling the western side. In Manila Water’s case IFC loaned it $110m and bought a $15m equity stake a year prior to an anticipated stock market float in 2005.

But the CAI asserted that 15 years later hundreds of communities remain without connections while water rates have risen fivefold. The IFC disagreed arguing that its equity stake in Manila Water was designed to “catalyse” other private investors. Certainly it helped the bank net a cool $62m in advisory fees. Equally one might question why two corporates behind these entities were created as joint ventures under local Filipino elites.

It’s a far cry from IFC’s initial 1956 Articles of Association categorically prohibiting equity investments to avoid the appearance of ‘self-dealing’. In reality around a quarter of the World Bank’s funding today goes directly to the private sector. In this context the bank might consider rebalancing its water investments and skew its portfolio more towards public sector to assuage critics.