A new report by EDF and Quantified Ventures finds that environmental impact bonds could help the state of Louisiana — and other coastal areas dealing with land loss and sea level rise — restore its rapidly disappearing coast faster and for less money, while involving local asset owners in voluntarily helping pay for projects that achieve superior reduction in land loss.
The report outlines next steps the state of Louisiana would need to take to pilot the environmental impact bond, including establishing credit rating, resolving any uses of Gulf oil spill funds and determining the bond's tax-exempt status. If implemented, it would be the first environmental impact bond for wetland restoration and would help Louisiana be a world leader in coastal resilience financing.
What is an environmental impact bond?
Environmental impact bonds (EIBs) are an innovative form of pay-for-success debt financing in which investors purchase a bond and repayment to investors is linked to the achievement of a desired environmental outcome.
In this conceptual environmental impact bond design, a performance payment would be provided if, at the end of the bond period, the wetland achieves a pre-established mutually-defined outcome, such as avoided land loss. Both investors and contractors share that performance payment, which is provided by local asset owners that would receive direct benefits from earlier, high-quality restoration. The bond would be repaid through future Deepwater Horizon oil spill settlement revenues.
Environmental impact bonds would allow the state of Louisiana to:
- Use capital more efficiently by building wetland restoration projects sooner,
- Involve local asset owners who benefit from wetland restoration projects,
- Reward high-performing wetland projects and the contractors who build them,
- Build an evidence base for the value of wetlands for reducing land loss, and
- Expand the range of possible coastal restoration financing tools.
What are the benefits of EIBs?
Align interests in coastal restoration and superior project performance: By featuring a performance payment, based on evidence collected by an independent party, EIBs align the interests of the state, asset owners, contractors and investors to ensure wetland restoration results in desired outcomes.
Attractive to impact investors: EIBs are designed to be attractive to private investors, particularly “impact investors,” who seek not just financial returns but also environmental and social returns. Investors interested in coastal restoration and/or making communities more resilient to rising seas and increased storms may be interested in investing in this kind of EIB.
Ability to measure wetland restoration benefits: EIBs provide an important means for demonstrating the value of restored wetlands. By quantifying the impacts of investing in wetland restoration, the EIB helps establish to stakeholders the benefits derived from restoration projects.
Increased government effectiveness: EIBs can help accelerate and magnify government effectiveness and impact by restoring wetlands that contribute to protecting communities and stabilizing local economies, jumpstarting job creation through coastal restoration and preserving tax bases.