HUDCO's approach to sustainable habitat development is translated into a policy by integrating water supply, sewerage and drainage projects into a holistic development. HUDCO insists on sewerage and drainage schemes simultaneously wherever water supply projects are sanctioned. HUDCO has funded wide gamut of sanitation projects with low-cost sanitation and tertiary treatment plants of waste water for industrial usage in the country benefitting individual and community. The projects include on-site facility like 2-pit pour flush units, septic tanks, biogas digesters; or off-site facility such as oxidation ponds, sewerage system, including conventional sewage treatment plants, in addition to earlier specified technologies, to achieve the permissible discharge standards of the effluent.

HUDCO has actively participated in implementation of sanitation related National Action Plan schemes of Basic Sanitation, Integrated Low-Cost Sanitation, Valmiki Ambedkar Awas Yojana (VAMBAY), Shelter and Sanitation facilities for Foot Path Dwellers, Night Shelter Schemes etc. HUDCO evolved its own subsidy programme for providing public / community toilets using innovative funding mechanism of utilizing MPLAD funds and involving NGOs and ULBs for its construction and up-keep. HUDCO also funded mobile toilets at Khumb Mela with complete treatment and material recovery mechanism in association with premier technical institute, under Corporate Social Responsibility (CSR) funds.

To avoid delay in project completion due to financial shortfall, HUDCO has provided viability gap funding for implementation of sanitation related projects under Government of India's flagship schemes such as Jawaharlal Nehru National Urban Renewal Mission (JNNURM), Atal Mission for Rejuvenation and Urban Transformation (AMRUT), etc. Recently HUDCO has provided the financial assistance to underground sewerage schemes in Villupuram and Tindivanam Municipalities in Tamil Nadu, Sewerage facilities in ULBS of Punjab and Rajasthan, Viability Gap Funding under AMRUT to the State of Rajasthan etc.