The Environmental Protection Agency set off a scramble last year with its call for proposals to manage the National Clean Investment Fund. The agency planned to select two or three nonprofits to build on the $14 billion NCIF and create a lending infrastructure to finance green upgrades for families and communities nationwide.
When the dust settled, $7 billion – the biggest slice of the pie – went to Climate United, a coalition of Calvert Impact, Community Preservation Corp. and Self-Help, the North Carolina-based community development lender. It was a crowning moment for Calvert Impact, which for three decades has structured financial vehicles to connect communities with financial markets.
“From the beginning, when the EPA put out their implementation framework, we saw a picture being painted of the kind of market infrastructure that we have seen for a long time from our perch at Calvert impact,” says Beth Bafford, Calvert’s VP of strategy.
In August, the EPA finalized contracts for NCIF, one of three pillars of the Greenhouse Gas Reduction Fund authorized under the Inflation Reduction Act. With the money in the bank, the awardees — which also include Coalition for Green Capital, a green bank network that was awarded $5 billion, and Power Forward Communities, a coalition including Rewiring America, community lenders and housing nonprofits that received $2 billion — are busy vetting and underwriting energy retrofits, EV charging networks and community solar projects in communities across the country.
ImpactAlpha’s Amy Cortese caught up with Bafford to hear how the coalition is preparing to distribute the funds and leverage mainstream financial markets.
ImpactAlpha: Congrats, you are now the CEO of a $7 billion organization! How does that feel?
Beth Bafford: Thank you! It feels incredible to be in this moment after years of work from so many members of our team. This is a $7 billion coalition – the combination of efforts across Calvert Impact, Self-Help, and Community Preservation Corporation – and it has been the highlight of my career to work with these brilliant, dedicated, and experienced teams. While this has been a long road, it feels like we’ve finally reached the starting line and we’re ready to get to work.
ImpactAlpha: Tell us about Climate United’s strategy.
Bafford: Climate United’s strategy is to build a clean energy economy that works for every American. We will be doing this initially in the program’s three priority sectors – clean energy, clean buildings, and clean transportation – and will be working to bring the benefits of these projects to American communities across the country. Across these sectors, we will be looking at how we maximize direct benefits to people’s lives – reducing pollution, creating good-paying green jobs, supporting local businesses, and saving money on energy bills.
To do this, we will structure financial products and programs that aim to address emissions reduction through routine lending (e.g., mortgages), alongside community lenders, or directly into projects to prove new financing models. While this program is new, our work to bring creative solutions to the market to maximize outcomes is not – and we look forward to leveraging the lending and structuring experience from across the coalition to demonstrate what’s possible.
We are excited to work closely with the other awardees to create a strong network of green financing entities that the program envisioned. We each bring different strategies and experiences to the market, which will ultimately make the entire program stronger.
ImpactAlpha: What sort of timeline are you expecting to get capital to projects on the ground?
Bafford: We are officially under contract, and so we are hitting the ground running. We do expect to have investments closed and funded in the next couple months. We’ll have a set of early transactions that we think are indicative of the strategy that we’re trying to execute, so I think you’ll be seeing activity across all of those strategies in the coming months.
ImpactAlpha. That’s earlier than some other timelines I’ve heard.
Bafford: We made the decision after we applied that we were just going to take a risk and get started knowing that there was a lot of infrastructure to build in order to get ready for implementation. So we’ve been working, really, since last October. We submitted the application, I think we took a few days off to sleep, and then got right back to work on everything from internal operations and systems to pipeline development, partnership development, stakeholder outreach and engagement.
ImpactAlpha: The original idea was that there was going to be this single national green bank that everything would flow through. Instead, EPA ended up going to a kind of a distributed green bank that can reach deep into a lot of communities. What can you tell us about the jockeying and the process?
Bafford: From the beginning, when the EPA put out their implementation framework, we saw a picture being painted of the kind of market infrastructure that we have seen for a long time from our perch at Calvert impact. Calvert impact sits in a unique place in the market. We really are a translator between how private capital flows and then how to get that capital into local financial institutions and local problem solvers on the ground, both in the US and internationally.
And so when the framework came out describing these hubs — this market infrastructure meant to centralize certain functions to create efficiencies but work with a network of local financing institutions and actors to solve problems at the local level — that’s kind of where we’ve always sat in the market and felt very comfortable.
Our focus from the beginning was to say, okay, how do we leverage the credible partnerships we have with organizations across the country and complement our skill set, and that’s what we really found kinship with CPC and Self-Help. We are not a consumer lender, Self-Help is an on-the-ground consumer lender. They know how to structure products directly for their members and directly for consumers across the country. CPC is a direct multifamily lender, and is the best in the country at figuring out how to decarbonize multifamily, affordable housing.
And so we said, how do we create a coalition that is bigger than the sum of its parts and that has full coverage of what we think this program can offer? And try to keep it streamlined. This program is complicated enough without having to manage an operation with a lot of various organizations!
We’re just so lucky to have found these organizations and all of our partners in order to really focus on the important stuff, which is getting the dollars out, getting these technologies out into the market, and reducing emissions to reach our 2030 and 2050 goals.
ImpactAlpha: If we look at the three coalitions that are sharing in the NCIF awards, how is Climate United differentiated?
Bafford: We are looking at a multi-sector and cross segment strategy across the seven market segments that we’re looking to serve [consumers, multifamily housing, community, infrastructure, small business and farms, schools and minority serving institutions, and stand-alone generation and charging].
We’re looking for that intersection of where we can expand clean energy infrastructure to bring the most benefits to people’s lives — where people live, work, learn and play — but really seeing how this transition shows up in a way that’s real and provides direct benefits. So whether that’s a clean energy job that leads to a long term career, or demand for US manufacturing that’s spurring local economic development and onshoring, the health benefits that are accruing to the kids that are sitting on the electric buses, the folks that are in affordable housing units that are safer and cleaner, or lowering energy bills and creating more energy security.
We want to maximize impact on the people behind the projects and show that this is a no brainer in terms of local economic development and an inclusive energy transition.
ImpactAlpha: A big chunk of what Climate United is doing is focused on building decarbonization. Part of the goal of the GGRF is to amplify the funds by seven times with private capital. How are you thinking about that?
Bafford: That’s certainly a core part of our strategy, and we’re trying to show some early demonstrations of that. Our thesis around building decarbonization is leveraging the existing sources of private capital that go into changing the condition of a building.
Changing the core systems of a building to get to high energy efficiency, full electrification and renewable energy is extremely hard, particularly in older buildings and buildings that have affordability constraints, like affordable housing, community centers and school buildings. It’s a very distributed problem, and takes a lot of stakeholders to get that work done.
There are millions of these buildings across the country. There are already financial markets that finance significant renovation and new construction. How can we look at those financing cycles and figure out where we can insert our financing alongside that private capital to nudge to net-zero emissions? Because every time a new fossil fuel burning system is put in, that’s typically a 15- or 20-year system that locks in emissions. So how do we show that the math works, prove out the savings that accrue from making those investments so that this becomes muscle memory that’s built into these markets?
That’s really the objective on the building decarbonization side across affordable multifamily, commercial, schools, single family homes. We think that’s the only way we’re going to be able to get decarbonization done at scale and really drive the benefits that come with it — the lower energy costs, the energy reliability, the cleaner air for families, the jobs that it creates.
ImpactAlpha: When you say you would come in alongside some of these existing financings, what does that look like? Are you a catalytic or subordinate layer, or are you literally alongside, financing the green portion of a larger upgrade?
Bafford: It looks a little bit different in different markets. On the multifamily, affordable side — and this is CPC’s strategy; they’ve been doing this without a dedicated source of funds since 2008 — that will be basically a subordinate soft second mortgage alongside a first mortgage in order to account for the increased upfront investment required to get to that high green standard.
In a affordable housing capital stack, there’s not a lot of room take on additional debt and debt service, so it’s going to be a subordinate, catalytic piece in the stack to make that upfront investment work, to pay for those electric systems and high efficiency upgrades that will yield long term cost savings and health benefits for families.
In other markets, it’s different. On the C-PACE side [Commercial Property Assessed Clean Energy, a state-run program for building energy upgrades] and commercial buildings, we’re looking at how to leverage the C-PACE markets, like we’ve done with the Cut Carbon Note, to get to an even lower carbon standard. It might not necessarily need to be subordinate, but potentially different pricing or different terms on the capital to make the math work to get to that net zero standard.
And then on the affordable housing and on the single family side, it’s going to be looking at both liquidity and aggregation of single family mortgages, as well as a guarantee of those mortgages to try to reduce the cost of the mortgage over time. This is the work that Self-Help is leading based on their decades of experience and building out the market for mortgages for first time homebuyers.
ImpactAlpha: What about the municipal bond market as a path to scale?
Bafford: To start, we’re looking at the muni markets that finance school building construction, both renovation and new construction, and how we work with those sources. That would probably be providing a kind of catalytic piece to help lower risk, lower cost, and enable those upfront investments to get school buildings to high efficiency, full electrification and access to solar where possible.
We think it’ll probably take a couple of different models, because schools are financed differently in different places across the country. So we want to test out a few different models for how that can work, and then look at how we disseminate that to say, here’s the playbook for how to think about school building decarbonization.
Part of the math and the data we need to build is the long term benefits and cost savings to make that upfront investment make sense. We want to be kind of the demonstration engine. We certainly can’t finance every school building in the country. But we can show what’s possible, get the playbook together, and then disseminate that across the country.
ImpactAlpha: Are e-buses program part of that? Or would that be in your transportation bucket?
Bafford: We’re looking at electric school buses and other heavy duty trucks and the barriers today to financing those vehicles. How do we structure something to address those barriers? Most electric school buses to date have been funded purely by grants. Another EPA program has been providing grants to school districts and state local governments to purchase the vehicles. But obviously, grants are not going to go far enough to create an active market and acquire enough buses to replace the 500,000 school buses that are on the road across the country.
One of the bigger challenges is the unknown residual value of the buses down the line, so it’s hard for traditional vehicle financing organizations to finance an asset. They don’t know what it’s going to be worth in five years, seven years, 10 years because they don’t know the battery life, they don’t know the maintenance costs. There’s a lot of unknowns for some of these new models.
I’ve become kind of obsessed with electric school buses. I have four kids. It’s s the dirtiest air that kids breathe every day, and it causes a lot of issues with school attendance and health challenges. My colleagues got me a little electric school bus pin because I talk about them so much! But this is definitely one of the things we want to try to support.
ImpactAlpha: How are you thinking about opportunities to actually build ownership and wealth creation in communities for more of a generational impact, beyond lower energy bills and cleaner air?
Bafford: That’s a huge driver of our strategy. We are at a period of time in this transition where we know if we don’t intentionally focus on wealth creation and job creation and opportunity, the financial markets will take the path of least resistance. They will go to the biggest deals, the biggest balance sheets, the easiest to get done transactions.
And what that does is concentrate wealth. It concentrates power into the big companies that are known to be able to get the jobs done.
Our job is to help support and make sure, not only with direct investment but with the market ecosystem, that smaller developers, small businesses, contractors — the folks that stand to benefit from the revenue of this activity — have every opportunity to do so. How do we work to provide balance sheet support to developers to access larger contracts, working capital and understand how folks can build and grow their businesses?
Then there’s the ownership of assets that are revenue-generating, which is some of the community ownership models on the solar side. We’re looking at where the models can be tested. There’s some incredible organizations across the country doing that work. How can we be additive and support the growth of that part of the market?
ImpactAlpha: What’s the spectrum of financing that Climate United will provide?
Bafford: For the National Clean Investment Fund program, the primary tools are what they call financial assistance, which is essentially anything but a grant. So loans, equity, investments, credit enhancement, loan loss reserves, things that are deemed to be financial assistance under the federal definition. There is allowability for market development and pre-development grants, but it’s a relatively small portion of our overall budget, because the goal is to build out a sustainable financial institution.
