LIDS Alumni Spotlight: Interview with Julian Lopez

Feb. 1, 2014 – Sarah Kalin

What have you been up to since graduating from Harvard?

Julian: Since graduating from the Harvard Kennedy School, I’ve chosen to pursue two opportunities. First, I spent my summer at Ceres, an environmental sustainability nonprofit based in Boston. There, I worked alongside the Policy Program team developing outreach materials, conducting research and analyzing legislative bills in order to advocate for specific climate and energy policies among private sector companies as well as agencies at the federal and state level.

This opportunity led directly into my full time, postgraduate position at the Port Authority of NY and NJ (PA). At the PA, I am part of the Leadership Fellows Program, which is a two year, rotational management program that fast tracks individuals for future PA leadership positions. My first rotation (of four) has been in the Port Commerce Department, where I support a nearly half billion-dollar redevelopment project aimed at improving the movement of intermodal freight goods across the New York Harbor. Work assignments include developing procurement bid packages for capital assets, reviewing and editing critical NEPA documents, assessing project risk, creating authorization documents for executive board review as well as managing my team’s accounting, invoicing and the federal reimbursement processes.

Throughout this past year, LIDS has been focused on the question: what is development? Can you please share with us what development means to you?

Julian: My notion of development is constantly changing since development is an ever-evolving concept, but perhaps in its purest form, I consider development to be the betterment of human life. As an individual specifically concerned with sustainability, I would add that there are several important considerations that must be included within development, those being: economic growth and inclusion, social equality (gender, cultural, regional, etc.), environmental stewardship and good governance (lack of corruption, transparency accountability, etc.).

How do you think international development differs from domestic development? And what motivated you to focus on the latter?

Julian: International development, which I often equate to development in middle to low-income countries, often revolves around economic growth and the creation of social, environmental and political institutions that provide basic amenities for human life.  Some of these amenities include supplying clean, accessible water, land and air, in addition to supplying basic health services, electricity, and an education.

Conversely, U.S. domestic development entails improving on an already robust societal situation. The U.S., and more generally developed countries, have the unique privilege of focusing their efforts on revamping what is already a relatively strong economic, social, environmental and political foundation. Thus, development in high-income countries often revolves around improving an already existing infrastructure, shifting toward clean, efficient energy sources and promoting further social inclusion, all while balancing strong economic growth with environmental sustainability.

In terms of a personal focus, I wouldn’t claim to focus on one more than the other. Generally, I think having an understanding of development globally and at all levels (country, state, city, etc.) is essential to be an effective agent of change. Consequently, I have made sure to gain exposure to both international and domestic development through my studies and work experiences. My recent move to the PA was done in part because I wanted to better understand domestic infrastructure development at a city level and there are few places as dynamic for this as the PA.

Julian Lopez graduated from the Harvard Kennedy School (HKS) in May 2013 with a Masters in Public Policy. While at HKS, Julian was an active member of LIDS; he was both a board member and worked on a LIDS project.

Innovation in Financing International Development Projects

Feb. 1, 2014 – Sarah Kalin

Many development projects rely on the public sector or philanthropic foundations in order to fund and sustain initiatives. What if instead, development projects could also harness the interest of private investors by promising a financial return on their investment along with positive juju? While many of us have eagerly been following the news stories of investors financing social projects using Social Impact Bonds or SIBs (most recently, $27 million was invested in a project dedicated to preventing recidivism in Massachusetts), organizations such as the Center for Global Development (CGD) and Social Finance have established a Working Group to try and figure out how to extend the model so that it can be applied to development projects. The result is what the Working Group refers to as a Development Impact Bond or DIB. A few months ago the Working Group released a full report (Investing in Social Outcomes: Development Impact Bonds), which details the Working Group’s recommendations. The report explains in detail how DIBs could be structured and implemented, as well as shares some interesting illustrative case studies (none of which have yet been implemented).

The way a typical DIB would work is comparable to a SIB. A donor or investor, such as USAID, would enter into a contract with a service provider agreeing to pay only for successful outcomes derived from specific development projects. The investor assumes the financial risk for the projects, but also has the opportunity to recoup its investment if predetermined outcomes are achieved. After the investment is made, the service provider implements the project (e.g. administering medication to a population at risk of HIV as a preventative measure), which is then closely monitored and evaluated by independent third party agencies. Only if there is evidence that the programs have successfully met the desired outcome (e.g. rate at which HIV has spread has decreased), will a so-called Outcome Funder, typically the government or public agency, then pay the initial investors their principal with a return, which is proportional to the level of success achieved. The Outcome Funders would be willing to pay due to the financial savings they now experience as a result of the project’s success (e.g. lower medical costs for the state, fewer orphaned children, more productive workforce). Most DIBs would require a lifetime of about 3-10 years in order to allow for both project implementation and outcome evaluation.

This model has the potential to make innovative projects addressing some of the world’s most challenging development problems into financial investment opportunities.

So what types of projects could such a model conceivably fund? The Working Group provides several examples, which range from education or public health initiatives to initiatives that promote energy efficiency or encourage entrepreneurship. Conceivably, any project that has a measurable outcome that leads to quantifiable savings for an Outcome Funder, which can be directly attributed to a specific intervention, could be financed using such a model.

Thus far, SIBs have been launched in a number of countries, but no DIBs have yet been issued. Some challenges may be that quantifying cost-savings directly derived from a specific intervention is challenging and few projects have the historical data required to make a compelling case for investment. Additionally, political instability is an added risk that exists in DIB projects that may be less present in SIB projects. This is because DIBs often require long-term partnerships and investors must be confident that Outcome Funders will remain committed to paying them if the outcome benchmarks are achieved regardless of regime changes or changes in political priorities.

While this model is currently untested, its promise to create investment opportunities with potential returns where previously there were only opportunities for one-time donations is exciting and worth following.

Picture source: Instiglio