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The D.C. Water and Sewer Authority signed a deal in September to set up an environmental impact bond, the first of its kind in the United States.

Goldman Sachs’ Urban Investment Group and the Calvert Foundation purchased the $25 million (U.S.) bond, which will pay for the construction and maintenance of green infrastructure intended to reduce storm water runoff during periods of heavy precipitation. At present, overflowing drainage infrastructure leads to over two billion gallons of sewage flowing into the Anacostia and Potomac rivers each year.

A twist on the pay-for-performance bonds most commonly associated with social impact bonds (see here), the municipal government will pay for the installation of the green infrastructure. If it fails to meet performance targets, the two bondholders will pay D.C. Water a risk share payment of $3.3 million, allowing the municipality to hedge its bets. If the infrastructure hits tier-2 performance, the investors are paid their principal and 3.43 per cent interest. With tier-1 performance, which involves a reduction of stormwater runoff greater than 41.3 per cent, the investors receive an outcome payment of $3 million.

The project was also supported by a federal Social Innovation Fund Pay for Success Grant, which is looking to support pilot projects around pay-for-performance initiatives across the nation. “In launching a project that is the first of its kind in the nation, D.C. Water has opened the door for others to follow their example,” said Dave Wilkinson, director of the White House Office of Social Innovation and Civic Participation.

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