Quantified Ventures and Neighborly have launched an Environmental Impact Bond (EIB) Challenge at the Mayors Innovation Project Summer Meeting in Burlington, Vermont. Quantified and Neighborly are joined in the challenge by support from The Rockefeller Foundation.
The challenge judges will choose two US cities or counties to issue the first publicly marketed EIBs. Proceeds from these bonds will be used to finance green infrastructure for stormwater management, or other projects aimed at building resilience for vulnerable or low-income communities. The winners will receive pro bono services in planning, structuring and marketing EIB issuances from Quantified Ventures and Neighborly.
The EIB offering is similar to other impact bond offerings that run on a pay-for-success model centered on positive societal impact. By structuring these transactions as bonds, investors can now have a stake in the successful outcomes of the municipal projects they help fund.
Green infrastructure incorporates the natural environment into engineered systems to capture and absorb stormwater into soil and vegetation. It can be more cost-effective than traditional “grey” infrastructure, and provides environmental, economic, and health benefits to local communities by creating more green space in urban settings. But as a new approach, green infrastructure typically needs to be piloted before being brought to scale, and bears some performance risk.
Quantified Ventures and the DC Water and Sewer Authority (DC Water) piloted the first EIB in September 2016, issued as a private placement to Goldman Sachs and the Calvert Foundation. The performance payment mechanism of the EIB shared the financial risk of DC Water’s green infrastructure program with private investors, because interest payments on the EIB are protected if the program fails. If successful, it could be scaled to reduce the cost of DC Water’s $2.6 billion capital improvement program to meet its stormwater runoff and combined sewer overflow reduction obligations.
The winners of the EIB Challenge will be hosted on Neighborly’s online brokerage platform. “The threats that cities face from climate change, social strife, and economic distress are real, current and widespread,” said Neighborly CEO Jase Wilson. “We need new models and financing mechanisms to produce more jobs, create new opportunities and build more resilient cities.”
Applications for the EIB Challenge are due by September 15, 2017, and winners will be announced this fall.