Financing Soil Remediation: Exploring the use of financing instruments to blend public and private capital

The International Institute for Sustainable Development (IISD) recently released a report entitled Financing Soil Remediation: Exploring the use of financing instruments to blend public and private capital.

The report makes the statement that governments around the world are looking at opportunities to attract private capital participation in both land remediation and its productive use and redevelopment thereafter. The business case is intrinsically the value capture in the increase in retail price of land and related business opportunities once the remediation is complete. However, where land value capture is lower and related revenue streams remain uncertain, the case for private capital participation is much less compelling. Governments, in this case, have to fund the remediation through public budgets and thereafter seek opportunities to partner with private counter-parties to use the land as “fit for purpose.”

The IISD report presents 17 case studies on a variety of financing instruments that blend public and private capital. Each case study includes a short discussion on the extent to which each instrument could be used to finance the remediation of contaminated soil.  The case studies in thereport demonstrate a variety of financing strategies, from index-linked bonds to savings accounts and from peer-to-peer lending platforms to debt-for-nature swaps.

This report is a part of a series of outputs of a four-year project, Financing Models for Soil Remediation. The overall objective of the project is to harness the full range of green finance approaches and vehicles to manage the associated risk and fund the remediation of contaminated soils.

The series of reports focuses on the financial vehicles available to attract investment to environmental rehabilitation of degraded land and the financial reforms needed to make these vehicles a viable and desirable means of investing in land rehabilitation. The IISD draws on best practices worldwide in funding environmental rehabilitation, with a special focus on the design and use of financial mechanisms to attract private investors, share the risk and offer a clear benefit for the rehabilitated land.

Several lessons emerge from these case studies described in the report in the context of financing the remediation of contaminated land, including the following:

  1. As with all financial arrangements, the risk appetite of different investors has to match the risk profile of
    the investment. It is difficult to crowd in private and institutional investors when projects remain below
    investment grade.
  2. Money follows a good deal. When legal, technological, revenue and other risks are understood and are
    transparent, feasible ways to reduce these uncertainties can be planned and financing strategies can be
    worked upon.
  3. When there is reasonable certainty that the value of the land will increase after remediation and will
    subsequently generate stable and predictable revenues, there is a strong case for blending public and
    private financing.
  4. When, on the other hand, projects have less attractive revenue potential, governments have to step in to
    finance the remediation, or at least a larger part of it.

About the IISD

The International Institute for Sustainable Development (IISD), headquartered in Winnipeg, Manitoba, is an independent think tank championing sustainable solutions to 21st–century problems. The mission of the IISD is to promote human development and environmental sustainability. IISD focuses on research, analysis, and knowledge products that support sound policy making.