Podcasts | November 14, 2018

Infrastructure hopes spring eternal. What’s impact got to do with it?

The team at



It’s becoming a biennial ritual to loft “infrastructure” as one of the few issues on which bipartisan cooperation is even imaginable in the current U.S. political climate.

The pipe dream found new life after last week’s midterm elections, which will give the Democrats a majority in the House of Representatives. Party leaders dutifully trotted out infrastructure as near the top of their legislative agenda. Democrats actually do have a good idea: a national infrastructure bank to finance investments in energy, water, transportation and broadband.

In his post-election press conference, President Trump renewed his own call for an infrastructure bill. “Maybe we’ll make a deal, maybe we won’t,” he said. “But we have a lot of things in common on infrastructure.” Of course, he added a poison pill, threatening a “warlike posture” if Democrats investigate his finances or political deals.

The latest episode of ImpactAlpha’s Returns on Investment podcast put the kibosh to the infrastructure fantasy. “The chances of getting an infrastructure bill through the next Congress is slim to nothing,” said roundtable regular Imogen Rose-Smith, an investment fellow with the University of California. “I don’t think there’s much cause for optimism in Washington.”

The stalemate may open the way for state- and local-level experimentation, which is already underway. And that’s where impact investors may have a role to play. “We can model some of the structures and processes and projects themselves, such that when the time comes time for there to be an infrastructure bill, there’s a good body of work to point to about how to do it right,” I said on the podcast.

Roundtable host Brian Walsh suggested the infrastructure debate may produce strange bedfellows, in the form of impact investors and Republican policymakers who both favor private-sector approaches.

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One market to watch will be water, Rose-Smith suggested. Water markets can help allocate a scarce resource towards its most valuable uses, but also challenge established ideas of water as a public good that shouldn’t be privatized. “Coming up with solutions to those problems is something that impact investing can help solve,” Rose-Smith said.

Striking the right balance between private capital and public accountability is key at the state, as well as federal, level. California voters, for example, rejected an $8.9 billion water bond on the last week’s ballot, after passing nine straight water bond measures going back to 1990. One reason: the billions in bond proceeds did not go through the state’s budgeting process, per usual, but rather were to be distributed as grants to farmers and other private parties developing the water projects.  

“Public money financing these private projects – that’s not necessarily the reputation or the brand that impact investing should have, or the structure,” I argued. “There still needs to be public accountability and democratic governance.”

The example, cited by Candide Group’s Morgan Simon in her book, “Real Impact,” of a wind project in Mexico that was blocked after local farmers and residents objected to the terms of the deal, provides a case in point. Stopping the deal might be seen as a victory for civic participation, but a defeat for renewable energy. Better to craft arrangements in which local residents participate in the deal and share in the value-creation.

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Rose-Smith said fund managers would play a big role in shaping how such infrastructure projects are structured. “Who are the money managers for these kind of investments?”

She noted that many of the big private-equity players such as Area, Apollo and KKR were successful in high-carbon, fossil-fuel infrastructure projects. “Are those the ones who are stepping forward for renewable and clean energy projects? How does the impact community feel about that?”

I suggested that new infrastructure projects were not only likely to be more distributed than centralized and more green than brown, but might also be financed over longer timeframes and rely on a broader range of cash flows, including carbon and stormwater credits, wildlife and wetlands restoration and community participation and livelihood.

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“There are all ideas the impact world has been experimenting with over 10 or 20 years that can be brought to bear to make these infrastructure projects look quite different than 20th century infrastructure.”

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