Environmental Impact Bonds

Stormwater is the only major source of nitrogen pollution still increasing in the Chesapeake Bay watershed. CBF is introducing local Bay jurisdictions to a new way of financing green infrastructure for stormwater management, called "impact investment"—and its additional benefits, such as creating local sustainable jobs and more healthy, vibrant communities.

Paying for Stormwater Solutions

CBF is no longer accepting applications for new municipal partners. The following sections provide an overview of Environmental Impact Bonds and our ongoing efforts through this initiative.

Chesapeake Bay watershed municipalities face challenges in meeting federal and state Clean Water Act requirements and managing compliance with consent decrees—particularly when it comes to financing solutions.

Working with impact investment advisory firm Quantified Ventures, CBF is providing pro bono support to Baltimore, Maryland and Hampton, Virginia to develop Environmental Impact Bonds to finance stormwater management and related resilience projects. Quantified Ventures introduced the first-ever Environmental Impact Bond with DC Water in 2016 and is now working with cities across the U.S. to help them tap into impact investment for environmental projects.

Environmental Impact Bonds allow municipalities to:

  • access capital for projects that are difficult to finance,
  • get projects financed more quickly if they are not already a priority by engaging new investors,
  • pilot new projects that may be viewed as risky—and share the risk with investors if the projects are not successful, 
  • engage other budget centers run by departments who will also benefit from a project's social and economic outcomes, and
  • benefit from understanding the efficacy of projects funded by the bonds, thereby informing future investment decisions.

What is an Environmental Impact Bond?

Today, we have a new generation of investors that cares as much about social and environmental returns as they do financial ones. These “impact investors” are seeking financial, social, and environmental returns on their investments.

CBF is helping municipalities leverage this new source of capital to create green infrastructure (rain gardens, permeable pavement, bioswales, and more) that can help reduce stormwater management burdens.

The Environmental Impact Bond model matches impact investors with municipalities planning environmental resilience projects such as green infrastructure. Investors provide up-front capital and share the project risk.

Here's how it works:

  1. Quantified Ventures works with municipalities to bring the necessary parties together and determine the parameters of the Environmental Impact Bond, including interest rate, timeframe, outcome metrics, and more.
  2. A municipality issues the Bonds and sells them to private investors to finance environmental capital projects. 
  3. The municipal issuer then uses this funding for green infrastructure solutions. The entity is required to pay interest on the bonds and to repay the principal amount of the bonds on scheduled payment dates.
  4. At the end of an evaluation period (for example, five years), the municipal issuer pays the investors an outcome payment if the project performs better than expected and the investors will pay the municipality a risk-sharing payment if the project underperforms.

Current Projects

BALTIMORE, MARYLAND

Baltimore will use EIB financing to construct 115 bioretention facilities, remove impervious surfaces, and restore streams to help meet its stormwater permit requirements. These projects represent a significant increase from the handful of green infrastructure pilot projects installed in the city to date.

The bioretention facilities—areas designed to trap and filter stormwater runoff with plants— will be installed on city-owned residential streets, public school grounds, and neighborhood parks. In addition to improving water quality, these areas can beautify neighborhoods and public spaces and can even increase property values, according to the Environmental Finance Center at University of Maryland.

Total project costs are estimated at $17.8 million. The proposed EIB is expected to fund $6.2 million for construction. The city will use Maryland State Revolving Funds (SRF) to pay the remaining balance.

 

HAMPTON, VIRGINIA

The City of Hampton is exploring the use of EIBs to finance several pilot projects from its Resilient Hampton initiative, which focuses on strengthening the city’s ability to cope with the effects of climate change. The city is identifying and will be designing green infrastructure projects that reduce localized flooding in Newmarket Creek, an area that includes Hampton’s central business district, Langley Air Force Base, and several residential neighborhoods.

CBF and QV are providing technical assistance to Hampton as it moves proposed projects through the city's regular capital-planning and budgeting process. Once projects have been adequately identified and profiled, CBF and QV will work with Hampton to identify an appropriate outcome metric and bond structure.

Download our Lessons Learned brief for more insights into what makes EIB projects successful.


Stay up-to-date on EIBs

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The Green Infrastructure Environmental Impact Bond project being conducted by CBF, with our contractor Quantified Ventures, is funded by a generous one-to-one grant from an anonymous donor that is being matched in part by The Kresge Foundation and The Abell Foundation.

DISCLAIMER

NO FEES WILL BE CHARGED BY CBF OR QV FOR THEIR PROGRAMMATIC SERVICES. ALL OTHER EXPENSES MAY APPLY, INCLUDING RATING AGENCY, BOND COUNSEL, INDEPENDENT REGISTERED MUNICIPAL ADVISOR, AND EVALUATOR FEES AND SUCH FEES SHALL BE PAID FOR BY THE APPLICABLE MUNICIPAL ENTITY.  NEITHER CBF NOR QV IS RECOMMENDING ANY ACTION TO ANY MUNICIPAL ENTITY.  THE INFORMATION PROVIDED HEREIN IS NOT INTENDED TO BE AND SHOULD NOT BE CONSTRUED AS “ADVICE” UNDER SECTION 15B OF THE SECURITIES EXCHANGE ACT OF 1934 OR THE MUNICIPAL ADVISORY RULES OF THE SEC AND MSRB.  CBF AND QV ARE NOT AND WILL NOT BE, ACTING AS AN ADVISOR (WHETHER FINANCIAL OR MUNICIPAL), AGENT OR FIDUCIARY TO ANY MUNICIPAL ENTITY AND CBF AND QV WILL NOT HAVE ANY ADVISORY, AGENCY OR FIDUCIARY DUTY TO ANY PERSON PURSUANT TO SECTION 15B OF THE SECURITIES EXCHANGE ACT OF 1934 OR SECTION 975 OF THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT.  CBF AND QV ARE ACTING FOR THEIR OWN INTERESTS.   MUNICIPAL ENTITIES SHOULD DISCUSS ANY INFORMATION AND MATERIAL CONTAINED IN THIS COMMUNICATION WITH ANY AND ALL INTERNAL OR EXTERNAL ADVISORS AND EXPERTS THAT THE MUNICIPAL ENTITY DEEMS APPROPRIATE BEFORE ACTING ON THIS INFORMATION.

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