In 2017, the EFC wrote about an exciting new financial instrument: the Environmental Impact Bond (EIB). At the time of the original blog post, EIBs were mostly theoretical, the only one in existence being issued by DC Water, but still very early in the process. Modeled after the Social Impact Bond, an EIB was novel and intriguing. Today, EIBs remain exciting, but more of them are beginning to surface. EIBs are tied to a group, Quantified Ventures, that structures the bond and has been pushing the ball forward.
The first EIB, issued by DC Water, aimed to address combined sewer overflows (CSOs) and a consent decree by utilizing green infrastructure, instead of the traditional gray infrastructure. The EIB allowed DC Water to share the risk of an unconventional project with impact investors, in this case Goldman Sachs and the Calvert Foundation. This works through a “pay for success” model, which creates a performance payout system that aligns the interest of the utility/municipality with that of the investors. The EIB creates a situation where otherwise risk-averse local governments can think outside the (gray infrastructure) box. Continue reading