Red Flag 4. Privatized access to public goods with risks to quality of services

• Risks to people can arise where vulnerable populations require access to goods or services of adequate quality in order to realize their human rights. In such a context, decisions to reduce costs carry an increased risk of human rights impacts when compared with other goods and services.

• Human rights risks that have been highlighted in relation to private sector participation in water and sanitation include lack of equality in provision and discrimination against users (Right to non-discrimination). Further, where serious impacts to quality of service have occurred, there have been accusations that the profit motive has interfered with transparency and accessibility. Cases of privatized water services in France, Bolivia, and Argentina have been said to demonstrate common features – the pursuit of profit maximization by operators leading to unjustifiably higher costs for consumers and diminished service provision. In some severe cases, such as in Bolivia, residents were forced to go without access to clean water, ultimately resulting in large scale public protests. Recent privatization in Rio de Janeiro, Brazil has also given rise to concerns about access, particularly in more vulnerable neighborhoods. Fifteen of Rio’s favelas have reported worsening water supply since the local water utility was privatized. In the UK, Thames Water, the UK’s biggest water company (privatized in the 1989), has been accused of having “taken on too much debt” under the ownership of Macquarie Bank, and fail[ing] to invest in infrastructure”. This is said to have led to a proposal for significant price increases for consumers, without which the company’s chairman warns the company “cannot guarantee safe and resilient water supplies that can cope with climate change and population growth”.

• Water scarcity resulting from over-extraction, pollution and declining natural storage capacity is further exacerbated by climate variability and extreme weather events. According to the Intergovernmental Panel on Climate Change, water quality and quantity will be increasingly stressed as global average temperatures increase, leading to greater incidence of drought in many different geographies across the globe.

  • Scarcity: Where water scarcity meets privatized water services, the impacts on clean water access for vulnerable populations can be significant, as communities and small-holder farmers compete with water intensive industries such as agricultural and mining for water resources. For example, in Chile, which has a privatized water sector and has experienced drought conditions for several years, there is significant water-related tension between residents, farmers and industry, with an estimated 2% of water being set aside for human consumption and an estimated half the Chilean population living in areas suffering from severe water scarcity. There have been mass protests in 2016, 2019, 2021 over the “injustices inherent in Chile’s private water system”. Competing demands for water resources are expected to intensify as a result of the energy transition, as increasing demand for water intensive copper and lithium to feed global demand for clean energy applications is coupled with community pressures in key regions, such as Chile’s Atacama region.

• Quality: Increasing extreme weather events can have an impact on water quality, such as where floods and cyclones bring seawater inland, contaminating freshwater sources or causing pollution where sanitation services are more basic. Rising sea levels can contribute to heightened salinity in groundwater, exacerbating health issues like high blood pressure and heart disease among the coastal communities who rely on groundwater as a source of clean water. Risks are exacerbated when private enterprise does not take into account the differentiated impacts on the most vulnerable populations.

• The low carbon transition and the physical impacts of climate change also have the potential to exacerbate inequality when coupled with the privatization of public services, such as electricity provision or wastewater treatment. Rapid transition from fossil fuel-based electricity grids to lower carbon grids in privatized electricity markets has the potential to drive up costs to consumers, and jeopardize access by vulnerable communities. In the wastewater sector, climate change is intensifying water-related disruptions like heavy rainfall, and sea-level rise, which overwhelm treatment systems and increase the release of untreated sewage into the environment. Aging or underfunded infrastructure often lacks resilience to these shocks, and, in privatized markets, cost containment may be prioritized over public safety. As a result, vulnerable communities — especially in coastal and low-income areas — face heightened risks of environmental contamination, health hazards, and loss of protective ecosystems like marshlands.

• Without proper mitigation of risk, the provision of for-profit services to dependent resident populations can place vulnerable people at risk of impacts where cost-cutting leads to understaffing, insufficient staff training and oversight and pressure to streamline operational costs.

  • In detention centers, reducing qualified staff, cutting maintenance and eliminating programs for detainees risks egregious living conditions, increased violence and overall neglect of prisoners’ human rights. (See Human Rights Advocates submission). (Right to security of the person; Right to adequate standard of living; Children’s rights; Right to Health). For example, private contractor G4S was the subject of a BBC exposé showing “alleged assaults, humiliation and verbal abuse of detainees by officers at [an immigration detention] center.” Following the scandal, the company increased staffing and training, leading the chairwoman of the UK Home Affairs Select Committee to state that the subsequent reduction in profits that followed the changes “raises very serious questions about G4S’s running of the center to make higher profits whilst not having proper staffing, training and safeguarding systems in place.”

  • In residential care facilities, understaffing and insufficient provision of training can lead to unacceptable standards of hygiene; resident-to-resident aggressive behavior; restrictions on movement or social interaction; or systematic administering, without consent, of drugs to render residents more “docile” and manageable (see Human Rights Watch report). (Right to bodily integrity (e.g. in the case of drugs administered with free, prior and informed consent); Right to health).

  • Beyond pure privatization, potential impacts can arise by virtue of private sector involvement in essential services through public private partnerships (PPPs) (also known as Private Finance Initiative contracts), whereby a private company undertakes to finance, design, build, and operate a public asset (such as a hospital or school) for a set period, with the government making payments based on performance. While such agreements can stimulate innovation and transfer risk from the public sector, critics warn that private sector provision of infrastructure and maintenance services over a long tenure can result in inflated costs for basic maintenance, or in other cases, as these contracts begin to near their maturity, maintenance not being undertaken at all, with impacts on health and access outcomes for people.

  • Advocates and journalists have also recognized the role that private equity investment and management consulting plays in incentivizing profit maximization in essential services that risks impacting peoples’ rights.

    • Disclosed private equity buyouts of health care assets (ranging from nursing home chains to medical device manufacturers) rose to USD63.1 billion in 2018; following the COVID pandemic, the figure has exceeded USD200 billion since 2021 alone. A systematic review of relevant studies in a peer-reviewed medical journal found that PE ownership “is often associated with harmful impacts on costs to patients or payers and mixed to harmful impacts on quality”.  A study on PE acquisition of nursing homes found a similar negative correlation with health outcomes; another Warton study found PE ownership of nursing homes triggers an 11% increase in mortality. The Warton study authors noted that the short-term focus of many PE business models means that firms are “driven by more than the usual profit motive” and that finding ways to increase profits can be undertaken “in a way that does not benefit patients”. Impacts can be exacerbated when financing is leveraged, whereby the company (e.g. nursing home) must increase profits in order to pay off a loan that is taken on in order to increase efficiency and productivity.

    • BSR has noted a report from the Private Equity Stakeholder Project to the effect that PE-owned foster care centres have records of an increased rate of abuse, forced isolation, and suicide. “PE-owned centers often fail to hire employees with adequate licensing, increase workloads of case workers, and underpay employees. This is all while certain PE firms record profit margins of up to 44 percent, a staggering rate for a public service.”

    • BSR also noted reports that for-profit childcare is less likely to deliver accessible and equitable services, pay decent wages to staff, or offer affordable parent fees.

    • It has been reported that Blackstone and KKR engaged in lobbying efforts to preserve so-called “surprise medical billing” (i.e. where US patients are billed for ‘out of [insurance] network’ physicians working inside ‘in network’ hospitals) which had increased since their acquisition of medical staffing firms; another article reports that private equity investors allowed a hospital to slip into bankruptcy in order to profit from the value of the land.

    • Management consultancies involved in public services have been associated with “consequences includ[ing] the ‘hollowing out’ of the capacity of public institutions, the climate crisis, growing inequality, and the financialization of economies”. In the UK and Australia, pledges and public inquiries have concerned government overreliance on external consultants, with critique suggesting it has led to the “gutting of the public service”, that is the erosion of in-house government expertise and capacity to manage essential services for people.

• The involvement of financial actors in housing and food systems can lead to negative outcomes for people.

  • Housing: According to the UN, 1.6 billion people worldwide lack adequate housing and this could rise to 3 billion by 2030. In 2021, investors bought one in seven housing units in the USA. Financialization of housing refers to the phenomenon whereby “housing is treated as a commodity – a vehicle for wealth and investment” rather than a social good, impacting the human right to adequate housing. One UN Special Rapporteur (SR) notes that the “vast amount of wealth [in global real estate] has left governments accountable to investors, rather than to their international human rights obligations”, whereby governments prioritize the interests of investors over the right of citizens to housing, and another former SR has noted that financialization has “transformed housing from a fundamental social necessity into an investment tool, stripping it of its intrinsic function to provide secure and dignified living spaces”. Financialization is associated with higher rents, evictions, strict and unforgiving payment schedules and poor quality maintenance, sometimes designed to encourage low-income residents to move out. There are innumerable stories of the effect of lack of affordable housing on vulnerable people, including single mothers.

  • Food systems: The financialization of food systems refers to the growing control of agricultural land, supply chains, and food commodities by financial actors such as hedge funds, private equity firms, and sovereign wealth funds. These entities treat food-related assets primarily as vehicles for profit, often prioritizing short-term returns over long-term sustainability and food security. As a result, farmers are increasingly subordinated to contract farming arrangements or reduced to targets within investment portfolios, limiting their autonomy and bargaining power. This shift has also contributed to greater volatility and speculation in global food markets, making prices more susceptible to shocks that can undermine both producer livelihoods and consumer access to affordable food.

Providing products and services in the sectors addressed in this red flag can contribute a range of SDGs, including:

• SDG 3: Good Health and Wellbeing

  • Target 3.8: Achieve universal health coverage, including financial risk protection, access to quality essential health-care services and access to safe, effective, quality and affordable essential medicines and vaccines for all

• SDG 6: Clean Water and Sanitation

  • Target 5.1: By 2030, achieve universal and equitable access to safe and affordable drinking water for all.

  • Target 5.2: By 2030, achieve access to adequate and equitable sanitation and hygiene for all and end open defecation, paying special attention to the needs of women and girls and those in vulnerable situations.

• SDG 7: Affordable and clean energy

  • Target 7.1: By 2030, ensure universal access to affordable, reliable and modern energy services

• SDG 10: Reduced Inequalities

  • Target 10.2: By 2030, empower and promote the social, economic and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion or economic or other status

• SDG 11: Sustainable Cities and Communities

  • Target 11.1: By 2030, ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums.

• SDG 13: Climate action

  • Target 13.1: Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries

• SDG 16: Peace, justice and strong institutions, in particular

  • Target 16.6: Develop effective, accountable and transparent institutions at all levels.

• SDG 17: (Partnerships for the Goals) envisages partnerships between the public and private sector to be a vital part of the achievement of the SDGs.

  • Targets 17.16 and 17.17: Public-private partnerships to be entered into in furtherance of the SDGs, and are relevant in this context to efforts to bring key services such as water and sanitation to under-served populations. However it has been noted that there is a “need to reconcile the call for increased partnerships by the SDGs, [with] the understanding that the definition of service provision should be guided by the maximization of benefits to the achievement of human rights” (see Special Rapporteur on human rights to water and sanitation, here). The SR noted here that, for example, in early 2014, the Portuguese Court of Auditors released a report on the audit of the regulation and management of water service concessions and public-private partnerships and its “main conclusions show that the majority of concessions consistently benefited the private sector to the detriment of municipal budgets and of affordability of services for users”.

• How is the company accessing insights into the experience of people who rely on our services, including through direct engagement with those populations?

• How does the company identify who may be particularly at risk from low or inadequate levels of service provision?

• How can both internal staff and affected individuals raise concerns through formal channels regarding service levels, without retaliation, and how does the company ensure that these are taken seriously and escalated within the company where they indicate severe risks to people.

• Has the company considered how the physical risks associated with climate change might impact the company’s ability to deliver this service reliably and fairly?

  • Example in Focus: Energy: Has the company considered how the cost associated with the energy transition towards renewables may affect peoples’ ability to pay for their electricity? Are there progressive tariff structures that recognise differences in income/ability to pay?

• How are decisions about cost-cutting or changes to service provision scrutinized for their potential impacts on the rights of dependent populations, and how are independent experts brought into those processes?

Example in focus: Nursing Care Facilities

• Do we have staffing levels adequate to provide care? Do we see a correlation between staffing levels and drug administration to patients?

• How do we ensure we obtain and document free, prior and informed consent to the administration of drugs?

• Do we limit residents’ access to judicial avenues of remedy in our contracts?

Example in focus: Investment in Housing (From SHARE)

• How do we ensure that we do not invest in strategies that are dependent upon the exploitation or displacement of low income tenants?

• How do we ensure that the principles of equality and nondiscriminatory access to adequate housing are considered at every stage in the housing investment process?

• How do we encourage resident participation in an active and meaningful way in decisions related to their housing?