It’s a far cry from the $20 billion that green lenders had expected to be deploying by now for green energy retrofits, EV charging and community solar projects.
But a smattering of small investments and grants in such community infrastructure are demonstrating that such lending makes economic sense even in the face of a hostile US administration. Indeed, the payback time for many such investments has become even shorter with rising prices for oil and natural gas.
“We still believe fundamentally that the network of community lenders is the best approach to scaling energy lending at a local level,” Amir Kirkwood of the Justice Climate Fund told ImpactAlpha.
Justice Climate Fund had been awarded $940 million under the Greenhouse Gas Reduction Fund to provide technical assistance to local banks and community development financial institutions to help them master green lending.
That was part of the $20 billion in federal funding for green lending that was frozen by the Trump administration more than a year ago. Community lenders have scrambled to raise alternative funding from family offices, pension funds and other investors. They have mostly come up short.
Kirkwood is not giving up. Since the beginning of this year, Justice Climate Fund has attracted a $5 million dollar investment from an unnamed donor to support Native lending; a $720,000 grant from the Michigan Department of Environment to work with CDFIs to finance energy retrofits paid back through costs savings, via the state’s “direct pay” program. Justice Climate Fund received a $2.5 million grant from the Hive Fund for Climate and Gender Justice to expand access to financing for clean energy projects across the Southeast.
“While government is still a really critical and necessary part of this and philanthropy is also a very necessary part of it,” says Kirkwood, “we’ve got to figure out how to expand the pool of capital providers.”
Educating investors
Community lenders have long punched above their weight, serving as an economic lifeline to underserved communities in times of distress. The lenders are once again in demand as costs soar for housing, healthcare, food and energy and federal cuts that have left the social safety net in tatters. The kind of community scale projects envisioned by the GGRF — financing rooftop solar, EV charging or energy retrofits, for example — can help lower energy bills, which comprise more than 6% of annual income for the energy-burdened households.
That was the promise of the GGRF, which has been mired in a protracted legal battle. The full US Court of Appeals for the DC Circuit is expected to rule in the next several months. Climate United, which had been awarded $7 billion to lend to green energy retrofits, EV charging and community solar projects, has effectively been subsumed into Calvert Impact, its lead coalition partner, until capital becomes available. Its CEO Beth Bafford has moved on.
The green bank network CGC got $2.7 billion out the door, but its strategic financial partners, including Brookfield, Apollo Global and Energy Capital Partners have not yet deployed the capital, according to the CGC’s latest report.
Efforts to raise money from private investors have yielded just small sums, such as a $50 million fund backed by family offices and managed by ImpactAssets Capital Partners that will loan to the green lenders.
To appeal to hesitant institutional investors, the nonprofit Justice Climate Fund, which goes by JCF for short, has partnered with the climate advocacy group Ceres to map out investment strategies that bridge the gap between institutional investment profiles and community-scale opportunities, and address barriers to scale, liquidity, and risk management.
Based on dozens of interviews with investors, community lenders and experts, the report is intended “to educate investors on what this world of community lending looks like, and provide them with some very practical options on how they can invest and solve very direct problems that align with their impact objectives,” says Kirkwood.
Adds Kirkwood, “It gives us the ability to talk to these investors in direct ways that answer that question that they have in the back of their head that turns into the barrier for them moving forward.”
Bridging gaps
“Institutional investors often perceive community lender investments as unable to deliver competitive risk-adjusted returns,” reads the report. “Emerging models are proving this gap between opportunity and challenge can be closed.”
“Many of the large investors only look at big deals,” Steven Rothstein of Ceres told ImpactAlpha. “They don’t have the staff to look at $1 million or $2 million deals. They look at $100 million or $50 million or $500 million. So part of this project is to help bridge that gap.”
Conservative investors looking for stable returns can consider conventional debt-based tools such as insured deposits, promissory notes or direct loans. Pacific Community Ventures, for example, has raised capital from family offices and corporate investors by issuing fixed-income promissory notes that offer a 3–5% return over a period of 5–7 years. Calvert Impact Capital raises retail and institutional funds through its Community Investment and Cut Carbon fixed-income notes, and deploys the capital to vetted community development financial institutions, or CDFIs.
To address the mismatch between community scale projects and big-ticket investors and draw in a broader range of investors, innovative structures such as loan pooling and securitization can help. Debt-based strategies such as bond issuances and collaborative approaches such as loan pooling are fairly well established, according to the report.
During the Covid pandemic, for example, Calvert Impact structured “community recovery vehicles” that pooled and securitized loans originated by CDFIs to free up capital for fresh lending. Equity models are still emerging. The Housing Partnership Network pools affordable and multifamily housing loans and
sell them to banks for CRA credit.
Equity-like funding, in the form of subordinated, long-term, and flexible debt that functions like equity on a CDFI’s balance sheet, enables CDFIs to expand their lending. Wells Fargo provided $500,000 in equity-like funding to Tampa Bay Community Development Corporation, which provided capital to acquire and rehabilitate foreclosed properties into new homeownership opportunities for working families.
JPMorgan has made direct equity investments in minority-owned banks, including Optus Bank in South Carolina and Southern Bancorp in Arkansas, to meet its Community Reinvestment Act requirements and support minority lending.
One idea floated by The University of New Hampshire’s Carsey School of Public Policy is the creation of CDFI-owned special purpose vehicles, which would enable a CDFI to issue preferred stock to raise cash.
Philanthropic, public, or impact-driven capital, meanwhile, can provide first-loss protection or guarantees to crowd in private investors.
Outside the box
The report also details strategies for cross-sector partnerships involving corporations, philanthropies, and social enterprises — what it calls “outside-the-box collaborations.”
In 2019, Kresge Foundation anchored the $45 million Inclusiv Southern Equity Fund, which provides secondary capital loans to community development credit unions in 17 Southern states. The fund enables the credit unions to expand their lending and promote economic mobility in areas of the South plagued by persistent poverty. The fund’s investors range from National Cooperative Bank to MetLife and Prudential Financial.
In 2011, in the wake of the financial crisis, Starbucks partnered with the Opportunity Finance Network to launch the “Create Jobs for USA” initiative. The coffee giant seeded the fund with $5 million and sought to raise more from donors including customers and corporations. The OFN-managed fund distributed capital grants to 120 CDFIs to support small business loans and create jobs.
At JCF, Kirkwood undertook an analysis of its pipeline and found that many barriers to getting deals done just needed a little problem solving. He also sees a funding gap, in particular, for the kind of technical assistance that JCF was prepared to do with its GGRF award.
In January, the nonprofit launched a resource hub with the US Green Bank 50, a network of state, local, and regional green banks, many of which were excluded from funding by the bigger CGC, after CGC was not awarded as much money as it had asked for in its GGRF bid. The hub shares information, templates, legal documents and other resources that can build capacity and streamline projects.
JCF is also working with its network of community lenders, including the African American Alliance of CDFI CEOs, Native lender Oweesta, the Community Development Bankers Association and others to form a syndicate of sorts. “Each of these individual lenders has some capacity to do clean energy lending as a part of their core strategy,” says Kirkwood. “But collectively, if they bring some of that capital together, they can bring about more deals, larger scale transactions, and diversify risk.”
Kirwood says such a syndication “would be a real innovation for our sector,” and accelerate clean energy lending. “This is a way to say, hey, we can jump through some of those barriers and immediately begin to do transactions.”
