Impact Investing | November 16, 2023

A decade of outcomes-based financing lays the groundwork for impact at scale

Eric Letsinger and Tee Thomas
Guest Author

Eric Letsinger

Guest Author

Tee Thomas

Environmental impact bonds have introduced new ways to finance nature-based solutions. The Soil and Water Outcomes Fund is incentivizing farmers to profitably adopt conservation agriculture practices. And health insurers are paying community-based organizations to help reduce avoidable hospital visits through our Health Outcomes Fund. 

A decade ago, when Quantified Ventures embarked on its journey into outcomes-based financing, the landscape was uncharted, and the potential impact on the environment and health sectors was uncertain. 

As we celebrate our first 10 years and embark on a transition of leadership, Quantified Ventures is reflecting on the knowledge gained, accomplishments achieved and beneficial outcomes produced.  Come January, Tee Thomas will succeed Eric Letsinger as CEO of Quantified Ventures; Eric will transition to the role of board chair. With the emergence of a new generation of diverse impact-first leaders, the future of outcomes-based financing and our company are bright. 

A few insights: 

  • Impact-linked returns. While impact investors have made it crystal clear that they seek market-rate returns, they also have demonstrated a willingness to link their risk-adjusted financial returns directly to the delivery of measurable outcomes. This was a mere hypothesis 10 years ago, and outcomes-based financing operates on more solid ground going forward with this now established. This shines a bright light on the reality that philanthropy remains the only game in town consistently willing to bring concessionary return options to the deal development table.
  • Environment + health. The health and environment sectors lead the way in outcomes-based financing, but our society rarely funds or finances projects at the intersection of environment and health.

    While opportunities exist for future collaboration, the use of actuarial models in the health sector and cost-benefit models in the environment sector currently creates material barriers to deal making.  The good news is that as of today, the largest actors in each sector are buying and financing around outcomes. Each one of the Fortune 500 Medicaid health insurers that we work with are now paying community-based organizations for health outcomes (e.g., reduced avoidable hospital utilization) through value-based contracts in our Health Outcomes Fund.

    Federal, state, and local governments are now buying cost-effective water quality outcomes (i.e., reductions in nitrogen and phosphorus in waterways) produced by increased adoption of conservation agriculture practices through our Soil and Water Outcomes Fund.

    This cross-sector alignment around outcomes could pave the way for future deals involving these two important sectors. Imagine a doctor being reimbursed by Medicaid for prescribing more time in nature to a family with a child with asthma or mental health challenges.  Imagine hospitals helping to finance green infrastructure projects that improve drinking water and access to nature. We’re getting closer and closer to this reality every day.
  • Risk reduction. Nature-based infrastructure is no longer perceived as riskier than grey infrastructure. Often, the best solution is a mix of both. Ten years ago, we were designing innovative outcomes-based financing structures like Environmental Impact Bonds to de-risk nature-based projects. Today, we’ve financed so many of these projects and created the evidence base needed to make cities comfortable deploying natural infrastructure through traditional financing mechanisms without the need for ’innovative’ finance.

    As a country, we’ve learned that nature reduces risk and as a result blended green/grey projects are fast becoming the norm.  Outcomes-based financing has played a material role in this evolution because it incorporates the measurement of outcomes, thus enabling cities to know what works and what doesn’t.
  • Debt-centric.  Debt financing is easier to align outcomes with returns than equity-centric investing.  The current interest rate environment will push debt financing to center stage during the next decade, while equity will have to learn how to play second fiddle. 

    The innovative debt-centric financing vehicles that Quantified Ventures and other firms have developed in the past decade provide a strong foundation for the outcomes-based financing sector to build upon.

Tangible success

 At Quantified Ventures, we are proud of our outcomes-based financing accomplishments over the last decade that have raised hundreds of millions of dollars for mission-critical, groundbreaking projects. These tangible successes include:

  • Environmental Impact Bonds. Pioneering the way in stormwater and flood mitigation solutions, we have laid the groundwork for new ways to finance nature-based solutions to create a more resilient and sustainable communities.
  • Soil and Water Outcomes Fund.  This unique facility – now operating across 23 states and hundreds of thousands of acres – incentivizes farmers to profitably adopt conservation agriculture practices that result in tangible improvements on downstream water quality and greenhouse gas emissions.
  • Outdoor Recreation and Rural Economic Development. Recognizing the immense potential of recreation infrastructure as a rural economic driver and time spent outdoors in improving health, our outcomes-based financing endeavors have breathed new life into many gateway communities.
  • Health Outcomes Fund and Value-Based Contracts. With compassion, we’ve created new ways to finance evidence-based substance use disorder treatment for pregnant and parenting mothers and medical respite facilities for individuals experiencing homelessness. These sustainable programs provide cost-effective places for hundreds of people to stabilize and transform their lives.
  • Dorvie. Aging is a natural part of life. With the launch of Dorvie, a healthy aging tech platform that brings services into the home, we’ve ensured that more older adults can age gracefully in the comfort of their own homes.
  • Bosland Growth. Our reforestation initiative profitably plants trees on abandoned mines across Appalachia. We pay 100% of the cost of reforestation and a fee for each acre of land enrolled, to produce healthy, young forests that sequester carbon, provide natural habitat for a number of important species, and improve degraded lands.

Bright future

Quantified Ventures’ focus is moving beyond discovery and to scale, with replicable models and market-driven pathways for growth. Tee will advance innovation in outcomes for thousands of communities across the country in three key ways:

  • Increased urgency. Climate impacts are becoming more pronounced and immediate, with rising temperatures, extreme weather events, and sea-level rise posing significant threats. This increasing urgency will drive greater demand for investments in climate resilience and environmental justice, as governments, businesses, and communities seek to protect their assets and populations.

    The dollars needed to protect the health of our communities can’t wait for small one-off and pilot transactions. Quantified Ventures will meet this urgency with greater scale and bolder investments. We now have sufficient data, capital, financing structures, partners, and the collective will to be successful. To some, the problems seem insurmountable, but we think there’s never been a bigger appetite in the private sector, across philanthropy, and at the federal, state, and local level to collaborate and deliver.
  • Collaboration across sectors. The future of climate resilience investments will emphasize a multisectoral approach across infrastructure, agriculture, forestry, healthcare, and urban/rural planning. Holistic approaches recognize that climate resilience requires a comprehensive strategy that encompasses all aspects of society. The communities most prone to suffer from climate inequities are those that have experienced historic under-investment. We believe that asking under-resourced communities to accept community health challenges – such as unsafe drinking water, inadequate housing, and unequal economic development—as separate and unrelated issues is both inefficient and ineffective.

    As we move to the next chapter with more urgency, we look to engage our partners with more holistic financial tools and governance models. We’ll achieve this through both internal and external capacity building and community-driven solutioning.
  • Solve at the community level. Investing in climate resilience and health at the community level will continue to rise in prominence. Community engagement and participation will be critical for the success of these investments. Allowing communities to lead and fully participate by driving priorities and shaping solutions can be more difficult and time consuming than just delivering what is assumed from afar to be the best option.

    Meaningful community leadership and engagement has proven to produce more durable and effective long-term solutions. We will look to build out additional partner capacity in this next phase of our growth and impact.

Some may be pessimistic about funding and financing impact-oriented projects and ventures in our current environment.While geopolitical instability, economic volatility, and higher interest rates are causing concerns, outcomes-based financing has proven durable, effective, and flexible in the fast-approaching, new economic environment. Quantified Ventures, after a decade of groundbreaking work, stands at the cusp of a new era, as does outcomes-based financing.

We’re a team of practical optimists who thrive on creativity, believe in outcomes-based approaches, and seek to make a big positive impact on society. In the face of urgent climate challenges, the focus is – as it should be – on scaling, innovation, and community engagement. We are excited about what lies ahead and the role that Quantified Ventures and outcomes-based financing can play in shaping our future.

The journey ahead promises not only continued success but the opportunity to have a broader, more profound impact on society. We hope you will join us.

Eric Letsinger is the founder and CEO of Quantified Ventures. Vice President Tee Thomas will succeed Eric as CEO on Jan. 1.