Climate Finance
Hampton, VA: An Environmental Impact Bond to Fight Flooding
Location: Hampton, VA
Status: Complete
Quantified Ventures partnered with the Chesapeake Bay Foundation to design the outcome metric, impact measurement, and disclosure aspects of the first Environmental Impact Bond (EIB) in the state of Virginia and to provide the City of Hampton with technical assistance in selecting the funded projects.
The $12 million bond closed on December 2, 2020, and will finance the construction of three nature-based projects that will help slow, store, filter, and redirect stormwater in low- to moderate-income communities in Hampton.
EIBs allow investors to support innovative projects with measurable impact for communities and the environment and ensure the outcomes of the projects are reported back to investors.
Problem
Located on the mouth of the Chesapeake Bay, Hampton, VA, is graced with miles of shoreline and breathtaking water views. Yet the city’s biggest asset - its proximity to water - also poses its biggest challenge. Hampton has experienced increased flooding frequency and severity in recent years. Water management challenges come from all directions: climate change-driven precipitation; proliferating impervious surfaces; a creek that winds through the city and swells with the tides; rapid land subsidence; and the highest rate of relative sea level rise on the Atlantic Coast. There is a lot at stake in this historic city. Established in 1610, Hampton is one of America's oldest cities, one of the fastest growing cities in the region, and home to Joint Base Langley-Eustis, a major military installation and local economic driver that is highly exposed to climate change risk.
Approach
The Hampton EIB finances projects that are among the first prototypes in a multi-stage decades-long pipeline of resilience work, built through nearly two years of public engagement, regional partnerships, and consultation with national and international experts. The City’s holistic “living with water” strategy, which aims to improve residents’ quality of life, economic viability, and environmental health, is coordinated through Resilient Hampton, a city-wide initiative to alleviate chronic stresses and enable recovery from extreme events and shocks such as hurricanes.
By issuing the bond, the City matched financial innovation to the creativity found in its nature-based projects: a drainage ditch turned into a bioswale with native plants; a holding pond revamped for stormwater and water quality; a major transportation corridor elevated and protected against flooding. Through this Environmental Impact Bond, Hampton will predict, measure, and report on the stormwater volume storage capacity added by these projects. The gathered data will inform future public investments in resilience projects that seek to improve quality of life, economic viability, and environmental health for Hampton residents. Meanwhile, the impact measurement and disclosure aspects of the EIB are an improvement over prevailing ESG bond designs such as green bonds, which do not measure actual project impact.
Impact
Hampton’s three critical nature-based projects are expected to add more than 8.6 million gallons of storage capacity for stormwater that would otherwise contribute to flooding and polluted runoff in the Newmarket Creek watershed, a key environmental, economic, and transportation corridor. Water equity in the City will be enhanced as low- to moderate-income communities that have suffered the most from chronic flooding will see improved conditions.
The City received a very positive market response to this issuance, attracting the usual mainstream municipal bond investors based on Hampton’s excellent credit rating as well as some of the largest ESG-oriented bond investors in the world, who were attracted by the enhanced impact measurement of this bond. The increased investor demand led to the bond being well oversubscribed – with the majority bought by ESG funds – putting downward pressure on the City’s interest costs.
In the Press
Additional Materials
Partners
The City of Hampton was advised by Davenport & Co. on the transaction. Morgan Stanley served as underwriter, with Wells Fargo as co-manager. Kutak Rock served as bond counsel. CBF and Quantified Ventures work with Hampton on the EIB was funded by a generous one-to-one challenge grant to CBF from an anonymous donor that was matched in part by The Kresge Foundation.