Calvert Foundation, Goldman Sachs invest in White House-backed environmental impact bond

Innovative instrument similar to ‘payment for success’ social impact bonds

Goldman Sachs and the Calvert Foundation have invested in a pioneering $25m ‘environmental impact bond’ issued by DC Water and Sewer Authority (DC Water) with $250,000 in funding support from the White House.

‘Environmental impact bonds’ or EIBs are similar in structure to social impact bonds, where financial payments to investors are tied to measured outcomes.

The DC Water EIB was developed with funding from the White House’s federal Social Innovation Fund that provides grant funding for scalable community solutions. It has a dedicated Pay for Success programme supporting social impact bonds and other similar models.

The impact bond was formerly announced last week and will fund green infrastructure as part of the DC Clean Rivers Project, a $2.6bn programme to control stormwater runoff and improve the District’s water quality.

The interest rate on the impact bond is 3.43% paid on a semi-annual basis. On top of this there will be ‘contingent payments’ linked to the performance of the new green infrastructure. If the green infrastructure outperforms expectations an ‘outcome payment’ of $3m will be made to investors. If the green infrastructure underperforms investors will make a ‘risk share payment’ of $3m to DC Water.

Therefore, Goldman Sachs and the Calvert Foundation, the independent not-for profit body that’s legally separate from SRI firm Calvert Investments, stand to make a return of 6.36% on their $25m investment if the green infrastructure outperforms expectations, but will only make a return of 0.50% if it underperforms.If the green infrastructure is successful but does not exceed expectations investors will get the standard rate of return on the EIB of 3.43%.

Beth Bafford, Investment Director at the Calvert Foundation said: “We are excited to test the efficacy of green infrastructure in the District. This work is critical for residents in our hometown and has national implications for how to finance green infrastructure solutions to combat the effects of extreme weather on aged, vulnerable sewer systems.” Bafford joined the foundation in 2014 from consulting firm McKinsey. Before that she was a Special Assistant at the White House Office of Management and Budget during the drafting and passage of the Affordable Care Act (Obamacare).

“This work has national implications for how to finance green infrastructure”

The foundation is known for raising $1bn in investment from more than 15,000 investors via its flagship Community Investment Note.

Dave Wilkinson, Director of the White House Office of Social Innovation, said: “In launching a project that is the first of its kind in the nation, DC Water has opened the door for others to follow their example.”

The Environmental Impact Bond will mature in 2046. Quantified Ventures coordinated the transaction and Harvard Kennedy School Government Performance Lab acted as technical advisor, while Public Financial Management acted as financial advisor.

Goldman Sachs has invested through its Urban Investment Group that to date has committed over $5bn to investments that benefit urban communities.