How do you turn $27 billion into nearly $190 billion? In the case of the Greenhouse Gas Reduction Fund, by leveraging the $27 billion in federal grants for green lending with seven times that amount in private capital.
The community development financial institutions, or CDFIs, and green banks that are charged with implementing the GGRF program are scrambling to line up projects and co-investors.
This week, Calvert Impact-led Climate United, which manages half of the fund’s $14 billion National Clean Investment Fund, inked its second deal – a partnership with California’s Forum Mobility to buy 500 electric drayage trucks, the vehicles used at ports to move shipping containers, and lease them to small fleet owners and operators. Climate United’s Beth Bafford says the $250 million deal uses tax credits, incentives and attractive financing to lower costs for these small operators.
Over its nearly three-decade existence, Calvert Impact has carved out a role bridging community finance with mainstream financial markets (see, “Beth Bafford on Climate United’s $7 billion strategy to mainstream green lending (Q&A)”).
Now is the perfect time for private investment dollars to work alongside community green lenders, Bank of America’s Dan Letendre told attendees at Opportunity Finance Network’s 40th annual gathering in Los Angeles last week. “CDFIs are now having net asset ratios that are at all time highs in our history,” he said. “There’s an opportunity to leverage that with a significant infusion in more private sector capital – low cost private sector capital.”
With their community engagement and low-income focus, CDFIs have become an attractive place for corporations, foundations and even high-net-worth individuals, providing low-cost capital that can be loaned out to small businesses, local organizations and project developers. Not all of them understand how to underwrite such a transaction, or the risks involved.
“Bank of America can provide a full payment guarantee to the investor to get them comfortable and make it easy,” Letendre said. “They don’t even have to underwrite.”
As the CDFI sector’s biggest private investor – with $2 billion in loans, deposits, grants and equity deployed to more than 250 CDFIs – the banking giant is rolling out an investor guarantee program to connect its CDFI clients with private investors that are willing to provide low-cost capital at around one to two percent. It plans to charge CDFIs a one-percent guarantee fee.
In addition to the GGRF, the Treasury Department’s CDFI loan fund allocated nearly $500 million in new bond issuances this year, its biggest ever amount. OFN, a CDFI finance intermediary, will facilitate a total of $173 million in bond loans to seven of its network members.
Catalyzing private capital
The GGRF, a program overseen by the Environmental Protection Agency, aims to stand up a long-term financial infrastructure to finance the roll out of community solar, energy efficiency upgrades, electric vehicles and other green projects in US communities, particularly those that have borne the brunt of polluting industries and policies.
That process will not be without hiccups.
“It all seems great that we’re finally coming into all of these funds,” says Duanne Andrade of the Solar and Energy Loan Fund, or SELF, which will manage close to $56 million from the $7 billion Solar for All program. However, she adds, “these funds that we all thought were going to be a silver bullet solution to all our problems and the answer to all our prayers to be able to move into an equitable and just clean energy economy for all, turns out, come with so many strings attached that they are very difficult to actually deploy.”
The nonprofit community lender is also hoping to become a sub-awardee of the National Clean Investment Fund and the $6 billion Clean Communities Investment Accelerator. As the first green bank in Florida, SELF has been laying the groundwork for this moment since 2011, financing solar water heaters, heat pumps and other energy-efficiency upgrades for single-family homeowners in the US southeast’s underserved communities.
“In recent years, our number one lending product has actually been storm mitigation, such as roof replacements, and with the recent storms, it’s become more evident that resilience upgrades are a priority,” Andrade said during a panel discussion last week.
To really get GGRF funding into their communities, she added that CDFIs must first meet the needs of the market, such as loans for new roofs and windows that are storm resistant, especially as communities grapple with the more severe hurricanes such as recent hurricanes Helene and Milton.
“SELF has been lending to low and moderate income residents addressing resiliency needs and preparing communities for this moment, which is to get to that last important step of decarbonizing,” says Andrade. However, the emphasis will be not on decarbonizing, but “the benefits for the humans that are inhabiting homes, that are working in buildings [and] are living in communities.”
Leading the green transition
The theme of this year’s OFN: “Made by History. Made for this moment,” signaled the opportunity ahead to lead transition to an equitable and inclusive climate US economy (read and listen to “City First’s Oswaldo Acosta on the leading role of CDFIs in the green transition”).
“Our history of performance has proven that we are made for this moment,” OFN’s Harold Pettigrew said during an opening speech. “This year is on track to be the hottest year ever recorded. Our climate isn’t changing, it’s changed. We’re gonna confront the greatest challenge of our time.”
To address the climate crisis in a way that uplifts underserved communities across the country, the CDFI industry will need an unprecedented amount of technical assistance, new infrastructure and strategic partners. At the convening, OFN announced a five-year, $25 million grant partnership with MassMutual Foundation to launch a new initiative focused on innovation and infrastructure building for CDFIs.
“So much of the work and accomplishments are going to come through distributed financing models, through CDFIs who understand the needs of those communities [and] opportunities for those communities,” says David Widawsky, director of the office of the Greenhouse Gas Reduction Fund at the EPA.
