How Social Impact Bonds can achieve positive ripple effects
Let us take a step back
In 2021, when we first started identifying new ways to fund the zero waste transition work at Zero Waste Europe, we came upon three major drawbacks. Firstly, as a nonprofit we are not an obvious partner for impact investors despite our extensive knowledge of the solutions and their concrete impact. Secondly, there is a lack of common alignment when it comes to priorities and how to operate within an effective, long-term, and sustainable zero waste transition. And, finally, existing funding mechanisms do not have the capacity to cover the financial needs at the EU level, nor to integrate by design the long-term/patient investment that would help beneficiaries become autonomous.
Our exploration of financial mechanisms in the world of social and environmental impact brought us to the Social Impact Bond, which has previously been used for other big challenges such as social justice, the education of girls in developing countries, and the access to and democratisation of health.
Despite its rather complex structure, we were convinced it would be the best way to bring key stakeholders together while liberating available upfront capital, all aligned towards the same social and environmental outcomes. Thanks to a transparent monitoring system, it would help make sure we create a blueprint for best practices, eventually leading to the establishment of new standards in terms of zero waste practices.
Why a Social Impact Bond?
That is what most people asked us when we first started reaching out to investors and potential outcome funders. For us, the answer was, and still is, simple: it is the only current financial tool that can bring the necessary partners together as well as build resilience for solving the issue that we are collectively tackling .
How does it work in practice?
Through our Cities Work, our leading policy expertise, and our Zero Waste Certification process implemented by the Mission Zero Academy, we help cities identify the ‘pain points’ in their waste management systems – be it financial, environmental or social – in order to foster circular and viable ecosystems and implement the best solutions possible in their context.
Most of these actors not only need funding to operate within the current system, but also to invest in the compulsory infrastructures and a setup that complies with the most recent EU legislative framework. Part of our cities work and certification process work is also geared to support their efforts to go beyond the EU legislation.
In a nutshell: cities need funding and expertise for their zero waste transition, and the Zero Waste Bond can help with that.
So where do they get the extra funding to do that?
The Zero Waste Bond will help local institutions by alleviating this financial burden, as well as by shifting the risks. The upfront capital, provided by private impact investors, allows the cities and municipalities involved to get the budget they would otherwise have needed to allocate within a short timeframe – simultaneously allowing for cost saving and making the asset more viable post-investment.
In this mechanism, the outcome funder can either be a philanthropy or a local, regional, or national government that understands the need for long-term investments and, therefore, agrees to repay the initial investors based on the success of predetermined outcomes.
This outcome-based framework ensures that the investment is targeting specific environmental and social outcomes, like job creation or waste reduction.
Why would investors be interested in this mechanism?
For investors, the Zero Waste Bond is an opportunity to combine financial gain with social and environmental benefits – such as shifting from production systems to consumption habits; creating new business models on the ground; and developing new types of incentives. By setting up the first Zero Waste Bond, we want to turn a social and environmental challenge into an investment-worthy opportunity by creating rewarding business models which progressively reduce waste and foster a regenerative economy.
Where do we start ?
The first internal assessment made together with our partner, Dalberg, set out to define three ‘programmes’ suitable for being funded through this mechanism: decentralised community composting, biogas plants, and reuse systems. We decided to start with decentralised community composting (DCC) due to its ease of implementation and its potential to bridge the gap between citizens and local authorities. Nevertheless, it is our ambition that DCC becomes a starting point, showing that transitioning to zero waste is feasible if well-operated, regardless of the existing waste management system and its direct environment.
What is next?
We are looking to mobilise €30M within the next 5 years to promote and encourage the uptake of a multiplicity of Proofs of Concept of different zero waste solutions – from decentralised community composting to reuse infrastructure – all across Europe. We will know whether we have been successful in our endeavour, when the Zero Waste Bond becomes a key standard financial tool and a potential substitute for other less holistic, more time-consuming funding alternatives.
We hope to see the effects of our work spread out like ripples across the water – in Europe and beyond!
Stay tuned about developments around the ZWB and new financing models by subscribing to our dedicated newsletter, The Ripple Effect.
Here is how you can get involved
Our Zero Waste Bond is currently entering its structuration phase. There are several ways to keep up to date with its progression and get involved:
- Are you part of a local authority wishing to start or further your city/municipality’s path towards a circular economy? Then we encourage you to apply to our Call For Cities;
- If you are an impact investor / a philanthropy, get directly in touch with our New Financing Models Coordinator, Caroline Culliere, at [email protected];
- Download our Zero Waste Bond leaflet.
Any other enquiries, get directly in touch with our New Financing Models Coordinator, Caroline Culliere, at [email protected].