USA: Environmental impact bonds can help make coastal communities safer, sooner. Here’s how.

By Shannon Cunniff

Last year’s hurricane season was the most destructive disaster season in U.S. history, causing $265 billion in damage and forcing more than one million Americans from their homes.

As climate change causes weather to get more extreme, coastal communities across the country are struggling to find cost-effective solutions to enhance their resiliency to storms and develop new ways to finance that work.

How can we help make coastal communities more resilient more quickly? How can we engage the private sector in coastal resiliency efforts and generate a financial return for investors?

Together with my EDF colleagues and partners, I set out to explore how one innovative financing mechanism environmental impact bonds – might help.

How do you fund restoration for a disappearing coast?

Coastal resiliency challenges are especially problematic along the Gulf Coast. In Louisiana, an area of land the size of a football field turns into open water every 100 minutes. Since the 1930s, the state has lost nearly 2,000 square miles of land and will lose another 4,000 square miles over the next 50 years if nothing is done. As the land disappears, so does the storm surge protection it provides communities.

Fortunately, Louisiana has a plan to rebuild and protect its coast, but it has not yet identified all the funding needed to fully implement the plan. That’s where environmental impact bonds come in.

Environmental Defense Fund and Quantified Ventures, the financial intermediary that designed the nation’s first environmental impact bond, looked into how environmental impact bonds could help the state of Louisiana fund wetland restoration projects sooner while also involving the private sector in helping finance the projects.

Environmental impact bonds are a 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, such as reduced land loss.

By pursuing a pilot environmental impact bond transaction, Louisiana has the potential to be a world leader in using private investment for coastal resilience – demonstrating how the private sector can partner with government agencies to implement coastal restoration projects and generate a financial return for investors.

Environmental impact bonds expand the range of possible coastal restoration financing tools beyond typical municipal bonds. Most importantly, they can help Louisiana and other coastal states restore their coastlines more rapidly and for less money by:

• Using capital more efficiently – building wetland restoration projects sooner rather than later, when the projects will be more expensive to build due to inflation, erosion and/or land subsidence.
• Involving local asset owners who benefit from wetland restoration projects – such as nearby land owners, leasers or businesses – in the financing of those projects.
• Rewarding high-performing wetland restoration projects and the contractors who build them, thereby encouraging the construction of high-quality restoration projects.
• Building an evidence base for the value of wetlands for reducing land loss and therefore reducing storm damages.

This environmental impact bond model can be scaled and replicated to support restoration efforts across coastal Louisiana, the Gulf Coast and beyond to help areas coping with sea level rise, land loss and damaging storms.

Environmental impact bonds will be a vital tool in the coastal restoration and resiliency toolbox.