New tool finances green infrastructure and insures disasters to boost climate resilience

As climate change pushes U.S. cities to build protections against stronger storms and more frequent floods, the Rockefeller Foundation is helping cities with a novel kind of financing, one that transfers some of the risk of innovative projects from cities to investors.

On August 16, 2017, the foundation announced that it will pay $342,000 to underwrite the costs for two municipalities in issuing environmental impact bonds, pioneered by The Goldman Sachs Group Inc. and Washington, DC. More than a dozen cities have expressed interest in the bonds, which link an investor bonus or penalty to how well the underlying project works.

The goal is to give local governments room to experiment with ways of protecting their residents against the impacts of climate change by providing a sort of insurance policy against failure of the micro-grids, flood walls or other untested projects. For investors, there’s a upside, too: If the project works better than expected, they get a bonus payment.

DC Water, Washington’s water utility, issued a $25 million bond to help build “green infrastructure” for stormwater management. The utility had been ordered by federal regulators to cut the raw sewage flowing into the Potomac River after storms.

Climate change results in more and wetter storms hitting the mid-Atlantic region, and massive rains can overwhelm the city’s water treatment plant.

The bond that DC Water issued is similar to regular municipal debt, with one difference: If the project reduces stormwater runoff by more than 41 percent during its first 12 months of operation, DC Water promises to give investors a one-time bonus of $3 million on top of the bond’s 3.43 percent interest rate.

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.

In related news, 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.

The Mayors Innovation Project is a learning network among American mayors committed to “high road” policy and governance: shared prosperity, environmental sustainability, and efficient democratic government. Around the country, mayors are taking the lead on pressing social issues—climate change, infrastructure, economic revitalization, health care, prison reentry, and more. We support and encourage this innovation by providing cutting-edge thinking and concrete examples that a city can use right away.

Building “high road” cities and metropolitan regions is both good for citizens and a key way to move the country to the high road nationally. Cities have enormous untapped assets and political strengths that can be organized better now. The Mayors Innovation Project exists to help its member participants lead by example, share their experiences with peers, and make this argument for cities nationally.

Quantified Ventures supports the progress of the social enterprise community through impact investing. They work with nonprofit organizations, entrepreneurs, and governments who demonstrate capacity for transformative social good, helping them to tap into the financial resources needed to sufficiently scale operations and deliver meaningful impact. By negotiating purposeful partnerships between leaders across sectors, they are able to accelerate funding that will result in greater societal benefits.

Neighborly’s role is to make municipal bonds accessible and transparent. By providing better ways for people to invest directly in the places and civic projects they care about, they create new options for communities to approach civic capital formation. Neighborly is working to democratize the $3.8 trillion municipal securities market, fostering a healthier relationship between global banks and our nation’s places.

See Bloomberg article by Christopher Flavelle.

See CivSource article.

See Mayors Innovation Project website.

See Quantified Ventures website.

See Neighborly website.


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