While billions of dollars flow into climate solutions, 2.2 billion people still lack access to safe drinking water, according to the United Nations. This stark reality reveals a critical opportunity for impact investors: clean water and sanitation investments currently receive only 1.3% of impact capital, despite representing the second-largest global investment gap.

This disparity contrasts sharply with the significant capital allocated to other sustainability challenges. In recent years, impact investors have dramatically shifted their focus toward climate action, with clean energy and climate resilience now capturing over a quarter of all impact allocations. This climate-centric approach addresses what the UN identifies as the largest global investment gap — estimated at over $2 trillion annually for clean energy.

However, clean water infrastructure (Sustainable Development Goal 6) also presents a significant investment gap demanding attention. The recent T100 report from Toniic highlights that infrastructure for clean water and sanitation receives merely 1.3% of impact investments, despite being identified by the UN Conference on Trade and Development as the second-largest global investment gap.

“The markets are less developed, which means there are fewer investment products, longer timelines for projects, higher risks, and typically lower financial returns,” explained one Toniic member about the challenges in water-focused investing.

This imbalance emerged clearly in Toniic’s T100 Project, a longitudinal study tracking over 100 dedicated impact investors representing $3.5 billion in assets. The data reveals how impact capital allocation has often mirrored market structures rather than proportionally addressing global needs.

Anne Rammi, CEO of Be The Earth Foundation, points to a broader evolution in investor thinking: “The current metacrisis calls for financial structures that are still in the making — ones that move beyond capital preservation and accumulation toward capital circulation, regenerative wealth distribution, and deeper relational accountability.”

Her perspective clarifies why certain development areas, including water infrastructure, struggle to attract sufficient capital. As noted in the T100 report, water investments face structural challenges: fewer available products, longer project timelines, higher risks, and lower returns. Yet, water infrastructure represents not only a fundamental human need but also an untapped investment frontier.

Despite these challenges, innovative pathways into water investments are emerging. Burnt Island Ventures, for example, has garnered significant interest within the Toniic community. This water-focused asset management firm has launched two seed funds and an opportunity fund targeting Series B+ investments, positioning itself as a leading early-stage investor in water solutions. The firm’s impact objectives directly address the SDG 6 gap — improving access to safe, affordable water, enhancing water safety, providing reliable water quality at fair costs, and protecting natural water sources. Several Toniic members have already invested in these seed funds, joining strategic partners such as water technology leader Xylem and climate-focused fund-of-funds Woven Earth Ventures. Such collaboration illustrates a potential model for addressing underserved sectors.

Bridging the Water Gap

The persistent underinvestment in water and sanitation highlights a structural problem that requires innovative solutions.

Creating specialized investment vehicles tailored to the unique characteristics of water infrastructure projects could broaden opportunities for investors interested in this essential sector. Blended finance approaches, distributing risks among various capital sources, could improve the risk-return profiles of water investments.

The water sector could particularly benefit from increased catalytic capital — investments accepting higher risks or lower returns to generate significant impact and attract further capital. The T100 data indicates that 64% of impact investors already include catalytic capital in their portfolios, suggesting growing mainstream acceptance.

Additionally, raising awareness of how water infrastructure underpins other development goals could attract additional investment from those currently not prioritizing this sector. Policy support to improve the investment environment for water projects could further accelerate capital flows to this underserved area.

Learning from Climate Success

The rapid shift toward climate solutions demonstrates investors’ capacity to mobilize substantial resources when conditions are favorable. Creating similar enabling conditions for water infrastructure could unlock significant new capital flows to address this critical gap.

Encouragingly, the T100 data reveals a hopeful trend: impact investors are becoming increasingly sophisticated and willing to deploy capital innovatively. One participant noted, “I’ve become a lot stricter in comparing alternatives and choosing the highest impact ones according to more systematic quantitative and qualitative criteria.” Another described a personal shift toward “extremely patient or higher-risk capital without expecting higher returns commensurate with the risks.”

These evolving approaches indicate the impact investing community is developing tools and mindsets necessary to address persistent funding gaps in sustainable development.

The question now is whether these approaches can scale effectively in water and sanitation investments — and whether impact investors will recognize the vast opportunity this gap represents. Addressing the water gap offers investors a triple opportunity: meeting an essential global need, pioneering innovative financial models, and establishing early positions in a market poised for growth as water scarcity intensifies worldwide.

The time for impact investors to explore water-focused vehicles, connect with specialized managers like Burnt Island Ventures, and engage in blended finance solutions is now — before water scarcity becomes the next urgent global crisis.

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This article is based on findings from Toniic’s T100 Project, a longitudinal study tracking committed impact investors since 2016. The report will be released on April 14th, and interested parties can sign up for a copy and further details about the release event here.