How can we use impact investment to prepare for devastating weather events?

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By Todd Appel, Chief Operation Officer at Quantified Ventures

Last year’s wave of hurricanes brought devastation to Puerto Rico, Houston, the Virgin Islands, and elsewhere, with the poorest and most vulnerable least able to withstand the impacts and often not the priority focus of recovery efforts. This barrage of storms left us at Quantified Ventures wondering: how can private capital help communities prepare for and mitigate the effects of weather-related disasters?

Impact Investing in Natural Disasters was exactly the focus of a panel I had the privilege of moderating at the Sorenson Winter Innovation Summit. Reflecting on the remarks from the diverse group of expert panelists – Shannon Cunniff from EDF, Gina Ford of Agency Landscape + Planning, Gretchen Sierra-Zorita—a public policy strategist, and Daniel Stander of RMS – I came to better understand the critical role that impact investors have to play in preparing our coastal communities for devastating weather events like those we experienced this year.   

First, there’s a role for private capital in bolstering the efforts of governments to respond to weather events. Like past victims of hurricanes, floods, wild fires, and other weather events, communities in hurricane-affected areas are now working to restore full delivery of basic services while mobilizing for longer-term recovery. In undertaking these efforts, governments often lack data for making the right decisions, face challenges in coordinating across different levels, and must stem an erosion of confidence within the business community and the public. For example, in Puerto Rico, increased funding from government, investors, and philanthropy, targeted to the right projects, could make a difference in restoring services, and most importantly could stem the potential tide of companies relocating and thereby exacerbating the economic impact of the storm.

Second, private investment can help quantify a community’s exposure to risk as well as the potential benefits of making resilience investments. Recovery efforts typically lead to a greater focus on what investments communities should undertake to make them more resilient to natural disasters in the future. As Daniel explained from his work at Risk Management Solutions, the key here is being able to quantify what risks a community faces and which investments would have the greatest impact. Communities can then prioritize their resilience investments, which could include a mix of organizational capacity building and infrastructure development, focused both on strengthening vulnerable areas as well as potentially relocating population centers and economically critical assets.  

Finally, private investment brings new tools to help tackle projects viewed as risky that might not otherwise get public funding. Our work at Quantified Ventures focuses on structuring Environmental Impact Bonds (EIBs), a form of outcomes-based financing which we are applying to green infrastructure, coastal wetlands, and other resilience projects in partnership with the Environmental Defense Fund, the Kresge Foundation, the Rockefeller Foundation, the Chesapeake Bay Foundation, and others. Although just one of several potential innovative financing techniques to address resilience, EIBs help communities by enabling them to pilot or scale promising innovations, increase the repayment stream available for projects by aligning the incentives of multiple stakeholders, and gathering outcomes data which can inform future decision making. EIBs help communities move forward with resilience projects which otherwise may be stuck, thereby enabling Impact Investors to put more of their capital to work.

The panel’s discussion brought these concepts to light, and hopefully served as inspiration to governments and investors alike who are working together to channel critical resources into our communities to help prepare for events to come.