World's First Environmental Impact Bond to Reduce Stormwater Runoff and Combined Sewage Overflows in Washington, D.C.


In partnership with DC Water, Quantified Ventures closed the nation’s first Environmental Impact Bond (EIB), a Pay For Success (PFS) transaction, on September 2016. This new, highly-replicable financing mechanism allowed DC Water to shift the performance risk of their green infrastructure project to impact investors, thus enabling them to choose ‘innovation’ over ‘business as usual.’ As a result, DC Water will pay for outcomes versus paying for a project and hope the desired outcomes follow.

In May 2017, the Government Finance Officers Association (GFOA) awarded its 2017 Award for Excellence in Capital Financing and Debt Administration in Government Finance to DC Water for its Environmental Impact Bonds. This is one of GFOA's most prestigious awards and recognizes contributions to practice of government finance that exemplify outstanding financial management. The award stresses practical, documented work that orders leadership to the profession and promotes improved public finances. 

Project Background

Like 772 communities across the country, the nation’s capital has a combined sewer system. This means both raw sewage and storm water flow through the same pipes into DC Water’s treatment facility, where the wastewater is treated and safely discharged into the Potomac River. Combined sewers were designed 150 years ago for circumstances far different from the ones we have today; no one builds them any more. During periods of heavy precipitation, the volume of water and sewage exceeds the capacity of the pipes and, by design, bypasses the treatment facility and is discharged directly into local rivers. As a result, 2 billion gallons of sewage overflows directly into the Chesapeake Bay Watershed annually.

In 2005, the Environmental Protection Agency, Department of Justice, District of Columbia and DC Water entered into a consent decree to address this problem. DC Water’s solution was a $2.6 billion tunnel system designed to capture the combined sewer overflow and prevent it from entering our rivers. Halfway through the 20-year project, the practice of green infrastructure (GI) emerged as a viable, innovative alternative to grey infrastructure tunnels as a means to manage urban storm water volume. GI (e.g., rain gardens, permeable pavement, green roofs, and rain barrels) mimics nature by serving as a sponge during storms; it soaks up precipitation, slowly releasing it into the sewer system over time to prevent system overload. In addition, green infrastructure brings about other benefits like creating sustainable green jobs, promoting economic development, and fostering healthier communities. Given the advantages of GI, DC Water wanted to reduce its proven tunneling plan and add GI as part of its solution to storm water overflow. However, GI had never been deployed at this scale before, leaving DC Water with questions and concerns around risk: “What if it doesn’t work? Will it be worth the risk?”



Environmental Impact Bond

DC Water needed an experienced, creative PFS Broker with a proven and efficient structuring method and turned to Quantified Ventures to model and advance this first-of-a-kind transaction. DC Water’s goal was to better offset and manage the appropriate risks of the proposed project. Together, we applied the PFS model to GI and structured the financing to transfer core project risk to investors. Through an iterative process of outcomes research, analysis and collaboration across disciplines (e.g., finance, engineering, legal), the result was the nation’s first EIB, a $25 million tax-exempt bond sold in a private placement to Calvert Foundation and Goldman Sachs Urban Investment Group. While standard municipal bond holders invest in issuers ability to repay on schedule, DC Water’s EIB investors bet on whether GI will produce outcomes ‘as expected’, ‘better than expected’ or ‘less than expected’. Investor returns are tied to project outcomes. If GI performs as expected during this initial pilot project, then DC Water can build the remaining GI required to meet the consent decree with an evidence-based understanding of expected outcomes, costs, and risks. If outcomes are better than expected, DC Water can modify the design of its GI plan, presumably saving money. In this case, both DC Water and investors share in these savings. If GI underperforms, then investors make a ‘risk share’ payment back, providing DC Water with ‘free’ insurance. DC Water is then armed with the information they need to decide whether to continue with GI or go back to its grey infrastructure tunnel solution. By identifying, quantifying, and transferring project risk, DC Water’s EIB created the incentives to deploy an innovative solution to an historical public policy problem by “de-risking” the project. Click here for printable fact sheet.

Future EIB Applications

Many believe this innovative EIB can serve as a replicable and scalable model not only for storm water management issues, but also across a broad range of clean energy, agriculture, forestry, fishery and infrastructure projects. We look forward to seeing this financing strategy customized and improved upon over time by public officials who are considering innovative solutions to policy problems but are faced with the inevitable question of: “What if it doesn’t work?”

Project Partners

Service provider, payor, evaluator

DC Water is serving as the service provider, payor, and evaluator in this project. DC Water distributes drinking water and collects and treats wastewater for more than 672,000 residents and 17.8 million annual visitors in the District of Columbia. DC Water also provides wholesale wastewater treatment services for a population of 1.6 million in Montgomery and Prince George's counties in Maryland, and Fairfax and Loudon counties in Virginia.



Calvert Foundation and the Goldman Sachs Urban Investment Group are serving as investors to provide the upfront capital needed to construct DC Water's inaugural green infrastructure project in the Rock Creek Sewershed.
The initial private investment is for $25 million.