In partnership with MRCTI and with support from the McKnight Foundation and the Walton Family Foundation, we are launching the Mississippi River Environmental Impact Bond (EIB) Challenge.
Through this 4th EIB Challenge, we will select 2 cities along the Mississippi River to issue the next Environmental Impact Bonds (EIBs). If you are a representative of a city agency, utility, water authority, or sewer authority, we want to work with you, and encourage you to read through our materials and consider submitting a proposal.
What is an Environmental Impact Bond?
An Environmental Impact Bond (EIB) is an outcomes-based financing tool that provides up-front capital for innovative environmental programs, either to pilot a new approach whose performance is viewed as uncertain or to scale up solutions that have been tested on a smaller scale. In its most basic form, private investors participating in an outcomes-based financing model pay the upfront costs for deploying these environmental solutions. Following deployment and program evaluation, the “payor”, the public agency or private institution that benefits from these solutions, makes a repayment to investors linked to the achievement of agreed-upon outcomes of the program (such as avoided stormwater runoff).
How will this benefit my city?
By shifting downside risk from the public sector to private investors, EIBs enable cities to pilot and scale innovative resilience solutions while protecting their capital budget, taxpayers, and rate base in the case of non-performance. At the same time, through the monitoring and evaluation process used to determine performance outcomes, cities gain valuable data on the cost-effectiveness and replicability of these innovative programs.
Successful Cases of EIBs: DC Water and Atlanta
First Environmental Impact Bond: DC Water
For example, in September 2016, we structured an EIB with the Washington, DC Water and Sewer Authority (DC Water) to finance green infrastructure in support of its stormwater management goals and EPA consent decree obligations to stem water quality issues from Combined Sewer Overflows (CSOs). Recognizing the potential cost-effectiveness of green infrastructure (GI) compared to traditional grey infrastructure and the environmental, economic, and health benefits it provides, DC Water had GI projects planned and ready to go. However, they lacked capital to deploy those projects and were concerned about taking on debt, given that green infrastructure hadn't yet been tested in DC.
Through the EIB we issued, DC Water is piloting green infrastructure on 20 acres and pays interest near its municipal bond rate, but is protected through a performance payment from its investors if the project fails. If the project exceeds expectations, DC Water will compensate its investors, with the performance payment made in the other direction, but it has then demonstrated the cost-effectiveness of GI, and its ability to reduce spending in its capital improvement program by scaling GI projects.
First Public Offering of Environmental Impact Bonds: Atlanta
Building on the success of DC, the City of Atlanta, with support from the Rockefeller Foundation, and working in collaboration with Quantified Ventures, issued a publicly offered Environmental Impact Bond to support the creation of green infrastructure as a form of flood mitigation. A brief overview is available here.
Through the support of the McKnight Foundation and the Walton Family Foundation, this opportunity will enable two cities to employ the services of Quantified Ventures at no additional cost, providing the following benefits:
Minimum EIB Structuring Fees. Grant funding will cover most of what Quantified Ventures would typically charge for their services, with cities asked to make up to a $10k match to enhance their application (all other typical deal-related expenses may apply, including rating agency, legal counsel, and municipal advisor fees).
Stakeholder Engagement Support. EIBs require stakeholder engagement across entities and present opportunities to engage new partners. Quantified Ventures identifies, coordinates, and aligns relevant stakeholders during the structuring process.
Deployment of Innovative Resilience Solutions. The EIB model allows cities to scale green infrastructure and many other innovative solutions aimed at building the resilience of vulnerable communities.
Broader Access to Capital. Cities can attract new impact, retail and institutional investors, including "place-based" investors empowered to finance the development of their own communities.
Tailored EIB Structuring. Coupon rates, number and coverage of performance cases, principal exposure, and payment guarantees can all be tailored to suit the context and needs of a particular city.
What are we looking for?
We are looking to work with city agencies, utilities, water authorities, or sewer authorities who have resilience projects that are far enough along in the design and planning process to issue an EIB. We will give preference to green infrastructure projects to address pollution runoff and/or flooding, but we encourage and will consider all proposals for a project or suite of projects that support the McKnight Foundation’ and the Walton Family Foundation’ goal of building resilience along the Mississippi River.
September 19 | EIB Challenge Kickoff in Memphis, TN at the MRCTI Summit
October 29, 10 AM Central Time | Webinar to learn more about the opportunity
October 29 | Submission period opens with rolling acceptances
November 27 | Submission deadline
December 18 | Final selections announced