New report: Unlocking Private Capital to Finance Sustainable Infrastructure

When two large storms knocked out an estimated $200 billion in economic value within a week, critical gaps in our infrastructure preparedness were laid bare. The 2016 “Hell or High Water” series from ProPublica and The Texas Tribune predicted a scenario that “visualizes the full spectrum of what awaits Houston” if it were hit by a large-scale hurricane. Experts consulted for the series cite Houston’s unimpeded development as a principal factor contributing to the region’s high exposure to flood risks.

According to Rice University engineering professor Phil Bedient, there is no way to design a system to handle the volume of water that Hurricane Harvey dumped on the greater Houston area. That said, if Houston hopes to arrive at a cost effective solution for mitigating future flood damage, Bedient recommends targeted, balanced investments in green and gray infrastructure.

In essence, this is also the message of EDF’s new report Unlocking Private Capital to Finance Sustainable Infrastructure. The report acknowledges the US’ $1.4 trillion funding gap to meet its infrastructure needs and provides a two-pronged path forward for the public sector to fill this gap.

On one side, the report provides case studies that examine innovative infrastructure solutions, like DC Water and Sewer Authority’s green infrastructure approach to solving its stormwater management issues, to right-size the scale of the need. On the other side, the report provides a new Investment Design Framework to facilitate the development of investment-ready sustainable infrastructure projects. Informed by extensive research and interviews with industry experts, the framework identifies four key elements for attracting private investment in sustainable infrastructure:

  • Suitable investment models: The values associated with the economic, environment and social outcomes of a project should be monetized and captured as a stable revenue stream. This revenue stream will help determine appropriate investment models and potential partners.
  • Standardized performance measurement: Determining revenue streams requires meaningful and standardized environmental and financial metrics. Standardization of performance outcomes across technologies and within sub-sectors are needed to scale the market.
  • Transparent risk management: Many sustainable infrastructure approaches and technologies are new and have limited performance data. This can make it difficult to assess risks. However, governments and investors can work together to identify and assess risks, take mitigating approaches, and distribute risks across multiple parties that align risk with potential reward.
  • Facilitating effective stakeholder engagement: Sustainable infrastructure projects that utilize innovative financing methods are often complex and require technical, financial, and legal expertise. Additionally, strong leadership and project champions are needed to drive innovative solutions and engage stakeholders to deliver successful outcomes.

As our focus shifts from storm tracking and mandatory evacuations to rebuilding and recovery, it is imperative that we seize the opportunity to do so in a way that will improve the resilience of our communities. The case studies and the Investment Design Framework included in the report are helpful tools to help make this happen. Embedding principles of sustainability into our infrastructure investment decisions is critical to achieving long-term economic, social, and environmental goals in the most cost-effective way possible. Success hinges on the public sector engaging broadly with the private, non-profit, and philanthropic sectors. We hope these stakeholders view this report as an invitation to engage with us and each other to overcome key investment barriers and unlock the flow of capital needed to deploy the infrastructure of the future – sustainable infrastructure.


Namrita Kapur, Managing Director of EDF+Business

Dakota Gangi, Sustainable Finance and Impact Investing Manager and William K. Bowes, Jr. Fellow, EDF+Business

EDF and TNC partner on new Environmental Impact Bond to fund coastal restoration

To address the world’s most pressing environmental challenges, we must catalyze large-scale private investment in innovative environmental solutions. One place where such solutions are greatly needed is Louisiana, where more than 2,000 square miles of coastal land have vanished since the 1930s, putting communities and industries at risk from the effects of rising seas and increased storm surges.

This week, EDF begins work to develop the nation’s second Environmental Impact Bond, with support from NatureVest’s new Conservation Investment Accelerator Program, the conservation investing unit of The Nature Conservancy. In collaboration with our partners, Quantified Ventures and Louisiana’s Coastal Protection and Restoration Authority, EDF will bring public, private and non-profit resources together to accelerate Louisiana’s coastal restoration and resiliency plans through a new Louisiana Coastal Wetland Restoration and Resilience Environmental Impact Bond.

Coastal wetlands are a form of “natural infrastructure” that provide storm protection by attenuating wave energy. Continual loss reduces these protective services, potentially increasing damage from a single storm by as much as $138 billion and generating an additional $53 billion in lost economic output from storm disruptions. If no actions are taken to restore and protect the coast, Louisiana could lose an additional 1,750 square miles of wetlands by 2060, posing a direct risk to as much as $3.6 billion in assets that support $7.6 billion in economic activity each year.

Can sustainable finance help save Louisiana’s Gulf Coast?

While Louisiana expects 15 years of Gulf oil spill-related funds to support restoration work, the state has identified less than half of the funding necessary. A pay-for-success environmental impact bond backed by these cash flows can help to close this funding gap by mobilizing funds from the private sector to accelerate the pace of restoration project implementation. Restoring the coast earlier in the planning horizon will allow the state to realize long-term cost savings.

Pay-for-success (PFS) is a form of performance-based contracting that ties payment for service provision to the achievement of measurable outcomes. The PFS model has emerged as a promising approach to fund social and environmental innovation. Quantified Ventures, a pay-for-success transaction specialist, paved the way for applying PFS in an environmental context with the development of DC Water’s 2016 Environmental Impact Bond (EIB).

In September 2016, the District of Columbia Water and Sewer Authority (DC Water) raised $25 million from institutional investors Goldman Sachs Urban Investment Group and Calvert Foundation to finance the construction of green infrastructure projects that will reduce the volume of stormwater runoff entering the sewer system, thereby reducing combined sewer overflow events. If the projects perform as expected, DC Water will pay investors in accordance with the initial term rate of 3.43%. If the project outperforms expectations, DC Water will make an additional payment to investors for sharing its risk in the project. If the projects underperform expectations, then investors will make a payment to DC Water.

By sharing project risks between public and private sector partners, environmental impact bonds allow public entities to support innovative environmental solutions and private entities to put their risk-seeking capital to work. Given that sea level rise, land subsidence, storms and hurricanes add uncertainty to the successful outcome of wetland restoration, an EIB can shift part of a restoration project’s risk from Louisiana’s Coastal Protection and Restoration Authority (CPRA) to investors.

In collaboration with CPRA, EDF will select a wetland restoration project from Louisiana’s 2017 Coastal Master Plan to demonstrate the feasibility of an EIB for coastal restoration. This EIB will serve as a blueprint for investments in coastal resilience throughout Louisiana and other coastal states. We expect it may even usher in a new era of private investment in coastal resilience to help cities in the U.S. and across the globe that are already experiencing the adverse effects of climate change and are looking for solutions.

Public, Private, and Non-profit collaboration needed for a sustainable future

The amount of capital required to transition to a low-carbon economy, adapt our infrastructure to cope with the damaging effects of climate change, and preserve healthy ecosystems far exceeds the capacity of the philanthropic and public sectors alone. Of the estimated $1.5 trillion annual investment needed, roughly $700 billion is currently being invested. Innovative green investment products – like environmental impact bonds and green bonds – are helping to fill the $800 billion funding gap that remains.

Dakota Gangi, Sustainable Finance and Impact Investing Manager and William K. Bowes, Jr. Fellow, EDF+Business

We recognize that financial institutions have a role to play in addressing environmental challenges that goes beyond their direct investment dollars. EDF’s sustainable finance strategy seeks to leverage the influence, expertise and capital of the financial marketplace to protect the environment, improve livelihoods and achieve the ambitions goals in Blueprint 2020.

The project is funded by NatureVest, the conservation investing unit of The Nature Conservancy (naturevesttnc.org), through its Conservation Investment Accelerator Grant. With this support, EDF has an exciting opportunity to demonstrate how collaboration between the public, private, and non-profit sectors can address a critical environmental issue. We are excited to be working with Quantified Ventures and the state of Louisiana on this pilot project and hope that it will serve as a model for crowding-in private capital for coastal resiliency and restoration projects around the world.


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