DC Water Environmental Impact Bond

DC Water and Sewer Authority (DC Water), the water utility in Washington, D.C., has announced the nation’s first Environmental Impact Bond (EIB), an innovative bond to fund the construction of green infrastructure to manage stormwater runoff and improve the District’s water quality. The $25 million, tax-exempt EIB was sold in a private placement to the Goldman Sachs Urban Investment Group and Calvert Foundation to fund the initial green infrastructure project in its DC Clean Rivers Project, a $2.6 billion program to control stormwater runoff that pollutes the Anacostia River, Potomac River and Rock Creek. The linked case study from the US Environmental Protection Agency's Water Infrastructure and Resiliency Finance Center provides an overview of how the transaction was structured.

Green infrastructure will be designed to mimic natural processes to absorb and slow stormwater during periods of heavy rainfall, ultimately reducing combined sewer overflows. The proceeds from the EIB will provide the upfront capital needed to construct DC Water’s inaugural green infrastructure project in the Rock Creek sewershed. DC Water will start by addressing about 20 acres of impervious surfaces, such as roads and sidewalks, and transform them into pervious surfaces to absorb stormwater runoff. Green infrastructure will be installed primarily in the public right-of-way and include permeable pavement and bio-retention facilities, such as rain gardens.

The bond is a first-of-its kind environmental impact bond  unique in using a "pay for success" model to finance infrastructure. It includes a contingent payment feature structured into the bond itself that depends on the performance of the underlying project. In this case, investors would be rewarded based on how effectively the new green infrastructure reduces stormwater runoff.

As explained by Goldman Sachs, “the EIB allows DC Water to attract investment in green infrastructure through an innovative financing technique whereby the costs of installing the green infrastructure are paid for by DC Water, but the performance risk of the green infrastructure in managing stormwater runoff is shared amongst DC Water and the investors. As a result, payments on the EIB may vary based on the proven success of the environmental intervention as measured by a rigorous evaluation. By financing this project through the EIB, DC Water seeks to create a model funding mechanism that other municipalities can leverage to advance the use of green infrastructure to address stormwater management in their communities.”

If green infrastructure outperforms expectations and the stormwater runoff reduction is greater than 41.3%, then DC Water will make an additional Outcome Payment to the investors for sharing its risk in the Project. If green infrastructure underperforms expectations and the stormwater runoff reduction is less than 18.6%, then the investors will make a “Risk Share Payment” back to DC Water. The payments from the investors for poor performance would then be used by DC Water toward redesigning the green infrastructure approaches.

What is an Environmental Impact Bond? An environmental impact bond (EIB) is a tax-free financing tool that municipalities can use to pay for the costs of implementing environmentally beneficial projects.  Private investors buy the bond that provides the upfront capital to construct projects designed to reduce environmental impacts -- like green infrastructure projects to reduce stormwater pollution.  Performance metrics for the project are established in advance. And the investor shares the risk with the municipality that the project will produce the environmental outcomes desired - meaning that the investor receives additional payment if the project performs better than expected and reduced payment if the project underperforms.  The municipality repays the investors based upon meeting the outcome measures with interest.  Municipalities can use user fees (e.g., stormwater fees) to repay investors based upon the outcomes achieved by the project.  An independent evaluator assesses the project outcomes based upon the performance metrics established at the sale of the bond to determine the repayment amount.

 Image credit: Chesapeake Bay Foundation


As part of its green infrastructure program, DC Water is also undertaking a Green Jobs initiative that targets local workforce development and sustainable job creation, including training and certification opportunities for District residents interested in green infrastructure construction, inspection, and maintenance.


Publication Date: September 29, 2016

Related Organizations:

  • District of Columbia Water and Sewer Authority (DC Water)

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  • Funding program

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