Monday, August 14, 2017

Brandywine-Christiana Watershed Pay-For-Success Project To Bring Up To $10 Million In Private Capital For Farm Conservation Projects

For the past three years, under a grant from the William Penn Foundation, The Nature Conservancy in Delaware and University of Delaware Water Resource Center have worked closely with water companies and municipalities on both sides of the Delaware-Pennsylvania state line to develop the Brandywine-Christina Healthy Water Fund.  
The Water Fund, an innovative conservation-finance vehicle, is designed to dramatically accelerate freshwater conservation in the ecologically and culturally rich Brandywine-Christina watershed.  
This summer, the Water Fund project received a tremendous boost when i2 Capital, a Washington, D.C.-based specialty finance firm, was awarded a $804,672 grant from the Natural Resources Conservation Service (NRCS) of the U.S. Department of Agriculture (USDA) to build a Pay-for-Success financing mechanism that will infuse the Water Fund with up to $10 million in private capital.
The grant is part of the NRCS Conservation Innovation Grant program.  
The Water Fund is comprised of five essential components:
1. Integrates investments from water companies and municipalities – two constituencies with overlapping financial and regulatory stakes in reducing sediment, nutrient and bacteria loads in the Brandywine-Christina watershed.  
2. Scientifically deploys water-quality interventions to geographies that offer the greatest pollution reductions at the lowest costs – most often agricultural lands, which in turn brings a new revenue source to farmers.  
3. Leverages landowner relationships and conservation-management expertise from a robust network of conservation partners to ensure that agricultural best management practices (BMPs) are properly installed, operated and maintained.
4. Establishes a method of accounting for pollution reductions, which regulators can rely upon to issue Municipal Separate Storm Sewer System (MS4)/Total Maximum Daily Load (TMDL) credits to participating municipalities.
5. Generates revenue from the sale of pollution reduction units and redeploys that capital to generate additional reductions, thereby creating a self-sustaining conservation-finance vehicle.
The Conservation Innovation Grant award will support i2 Capital’s effort to develop a Pay-for-Success transaction that will result in private capital for the Water Fund, which can then be used to scale Water Fund operations.
Modeled after an environmental impact bond (EIB) recently implemented in Washington, D.C. by DC Water, the Calvert Foundation and Goldman Sachs, i2 Capital’s Pay-for-Success transaction will shift the risk of conservation outcomes from municipalities and water companies to private impact investors who are committed to conservation innovation.
This construct allows private, public and philanthropic entities to pool resources and expertise to achieve lasting conservation objectives.  
The i2 Capital Pay-for-Success approach also stands to greatly accelerate water quality improvement by offering farmers access to new sources of capital, thus incentivizing best management practice adoption and increasing the sustainability of small agricultural operations.
It is envisioned that the resulting Pay-for-Success model will drive agriculture-based water conservation approaches at scale across the United States.
Central to the Pay-for-Success model is the “Environmental Impact Unit™” that i2 Capital will create.
The “Environmental Impact Unit™” is intended to incentivize municipalities and water companies to pay, over time, directly for Water Fund investments in agriculture-based water-quality conservation interventions that meet environmental objectives and support the goals of the Clean Water and Safe Drinking Water Acts.
The willingness of Pennsylvania and Delaware regulators to adopt a watershed approach to MS4/TMDL compliance will be central to the viability of the Pay-for-Success transaction.
Through the Water Fund stakeholder engagement process, regulators in both states have already signaled a willingness to explore new and creative approaches to compliance.
The William Penn Foundation provided development capital for the Water Fund project as part of its Delaware River Watershed Initiative (DRWI), which targets philanthropic funding to eight sub-watersheds in the Delaware River watershed.
The Brandywine-Christina is one of the sub-watersheds targeted by the Delaware River Watershed Initiative.
Conservation organizations collaborating with The Nature Conservancy in Delaware and University of Delaware Water Resource Center on the development of the Water Fund, include the Brandywine Conservancy, Brandywine-Red Clay Alliance, Natural Lands Trust and Stroud Water Resource Center.
The Water Fund has also benefited from active engagement with Suez Water, Aqua Pennsylvania, Pennsylvania American Water, the City of Wilmington, the City of Newark, Delaware Department of Natural Resources and Environmental Control, Pennsylvania Department of Environmental Protection and the Christina Watershed Municipal Partnership.
The City of Newark is currently working with the Water Fund to implement the Water Fund’s first pilot farm project with the assistance of the Brandywine Conservancy and the Delaware Department of Natural Resources and Environmental Control.    
The i2 Capital Pay-for-Success project is currently one of only two national Pay-for-Success efforts aimed at funding agriculture-based interventions across a watershed to drive downstream water quality improvement.
The other initiative is led by the Chesapeake Bay Foundation and its partners, who were awarded a 2017 Conservation Innovation Grant to build a Pay-for-Success transaction in York and Lancaster counties.
Both of these counties are neighbors to Chester County – collectively, these three counties account for the upper two-thirds of the Brandywine-Christina watershed.
A partner organization of i2 Capital, Quantified Ventures, is also a participant in both of these Conservation Innovation Grants, which will assure close communication and coordination between the two efforts.
The inclusion of three Pennsylvania counties in the 2017 Conservation Innovation Grant program also expands the opportunity for the Pennsylvania Department of Environmental Protection to pioneer groundbreaking watershed-scale approaches to MS4/TMDL compliance.
For more information, visit the TNC-Delaware’s Brandywine-Christina Healthy Water Fund webpage or contact Richard Jones, Director of TNC-Delaware by sending email to:
For more information on i2 Capital and the Pay-for-Success project, please visit the i2 Capital website.
For more information on stormwater management in Pennsylvania, visit DEP’s Municipal Stormwater webpage and information is available on Chesapeake Bay restoration efforts on DEP’s Chesapeake Bay Office webpage.
(Photo: Brandywine River Smith Bridge, just south of the Pennsylvania-Maryland border by The Nature Conservancy.)
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