Environmental Impact Bonds (EIBs)
EIBs are bonds that use a “Pay for Success” approach. Private investors provide upfront capital for water infrastructure with environmental benefits, and the city/utility repays the investors based on the achievement of the agreed upon project outcomes.
Under the “pay for success” model, if a project funded by an EIB does not perform in accordance with the agreed upon outcomes, then the city/utility may not have to repay the full debt (and the bonds investors may lose some amount of their principal, depending on the bond terms.)
If, on the other hand, the project performs perfectly or exceeds expectations, investors are repaid in full. The theory is that EIB-funded projects will outperform the alternatives, thereby creating budgetary savings for the utility that will enable the bond holders to receive a premium on their investment.
Because repayment of an EIB is benchmarked against specific performance outcomes, EIBs create incentives to deploy innovative solutions. EIBs can be an attractive option for a water agency looking to scale up investment in green and other localized infrastructure projects while shifting performance risks to their investors.
Quantified Ventures’ Eric Letsinger explains how EIBs work and provides examples of existing EIBs in Washington, D.C. and Atlanta, Georgia.
