The cash is expected to go towards improving water quality in Langstone Harbour and neighbouring Chichester Harbour.
Southern Water’s chief executive Ian McAulay announced the new measures as part of the company’s environmental improvement fund.
The commitment follows a series of top-level meetings with local campaigners and political leaders, including Havant MP Alan Mak and Chichester MP Gillian Keegan.
Environmental activists have previously blasted Southern Water over its handling of stormwater and waste discharges, which in the past have seen vast quantities of sewage ooze into Langstone Harbour.
Campaigners have demanded that the company’s treatment works site at Budds Farm is upgraded to stop wastewater being expelled from the facility into the harbour.
In a statement yesterday, Mr McAulay said: ‘Saving the internationally important and threatened habitats at Chichester and Langstone harbours is incredibly important to us, our customers and our stakeholders.
‘We are absolutely committed to playing our part by reducing the harm to the harbours' waters from combined sewer overflows (CSOs).’
He added: ‘Our new £5m environmental improvement fund, as part of our overall spending plans for 2021/22 and beyond, clearly demonstrates Southern Water's commitment to being an active and involved member of the newly-formed Chichester Harbour Protection and Recovery of Nature group.
‘This emerging group is a very welcome and positive step forward in forging a powerful partnership to save our harbours.’
A proportion of the £5m fund is expected to be invested with partners or initiatives that deliver ‘nature-based solutions’ for both harbours, the utilities company said.
MP Alan Mak welcomed the news and said: ‘Southern Water will play a key role in reducing discharges and ending storm overflows, and this investment is a good first step.’
Over the next four years Southern has said it is investing £1.7bn across the south east to improve the capacity and efficiency of the waste water network and cut the number of releases from CSOs.
This includes £13m to be invested to improve instrumentation and data capture that further reduces the risk to the environment from storm overflows, including at Budds Farm, which releases into Langstone Harbour.
A major £6.5m scheme to reduce groundwater infiltration into the vast Chichester sewer network is also planned - Southern Water says every drop of groundwater that can be kept out of the network reduces the need for storm overflows.
The investment builds on the £3.2bn Southern Water has spent since 2015 to improve and maintain its assets across the south east.