Four Things Community Lenders Realized about the Clean Energy Transition

We discussed the basics of green lending with community lenders from across the country to prepare them for the clean energy transition. Here’s what they had to say.

For decades, community lenders have been the backbone of financial stewardship in underserved communities. While these communities are hit hardest by climate impacts, systemic and longstanding obstacles to affordable finance make it harder for them to adopt clean energy technologies.

Since the $27 billion Greenhouse Gas Reduction Fund (GGRF) was announced, community lenders (e.g. community development-based, mission driven, minority owned, etc.) nationwide have been eagerly awaiting guidance on how to tap into these transformational funds. With billions allocated to uplift low-income and disadvantaged communities, this funding represents more than just financial aid — they are a commitment to combating climate change by empowering marginalized communities.

In April 2024, RMI hosted a “GGRF bootcamp” with 75 community lender members of the National Association for Latino Community Asset Builders (NALCAB), National Bankers Association Foundation (NBAF), the African American Alliance of CDFI CEOs (The Alliance), and Oweesta Corporation. Participants dove into the intricacies of low-emission technologies, such as heat pumps and solar panels, and how Inflation Reduction Act (IRA) incentives could reshape their economics, making them cost competitive with gas-powered alternatives.

Below, we’ve summarized a few key takeaways from this bootcamp — a first step in sharing learnings across industries and sectors as community lenders embrace new roles as green lending leaders.

1. The green business case is there, but it’s not yet well understood

While some community lenders have already started offering green loan products, it is brand new for many. The learning curve is high and participants’ feelings were mutual: before investing the resources and capacity to upskill, lenders need clarity on what green projects entail, and how their business, clients, and communities can benefit.

Participants reflected that the bootcamp’s landscape overview helped them see the climate lending opportunity and imperative more clearly, and in ways that made sense for their work. Some participants were surprised to learn they already provide green loan products, such as loans for home or building upgrades; others saw the opportunity to easily integrate green lending into existing business lines and portfolios by re-tooling existing products for green outcomes.

Further, attendees shared that gaining a deeper understanding of the implications of climate change can equip them to effectively communicate the benefits of clean technologies to their clients. Community lenders crave data-driven examples and market-tested case studies that can illustrate why green lending is important, and how it works, to take back to communities where they work. Understanding the green opportunity is a prerequisite to developing green loan products, but building demand for those products starts with building trust and awareness about the benefits.

2. The green opportunity looms large, but is not one size fits all

Getting lenders up to speed on the green opportunity is the right first step, but it can only take us so far. Tailored advisory for various markets, products, and lender types will help unveil opportunities to leverage GGRF funding in ways that meet the unique needs and demands of different markets and regions.

For instance, small business lenders may work primarily with borrowers who rent office space, so cost savings from rooftop solar or revenue streams from EV chargers may be off the table. Nevertheless, because the green transition spurs demand for new jobs, skills, and products, small businesses may benefit from lender support to capitalize on these new opportunities.

Local and state policies also directly influence the types of projects lenders can participate in, and the types of creative financing solutions that can help fill gaps. To illustrate, additional state incentives may help bolster a project’s capital stack, while net-metering or zoning policies can affect the viability of solar projects in certain places.

3. The IRA changed the game; now community lenders will need to figure out how to win

Bootcamp attendees showed up for GGRF, but stayed for the insights on how abundant IRA tax credits and other rebates can make GGRF dollars go farther. Beyond GGRF, the IRA is a treasure trove of funding incentives that tip the scales in favor of green technologies. Yet, navigating and accessing incentives is complex. Ensuring financial benefits flow through to community lender borrowers adds yet another layer.

At the workshop, lenders explored how some incentives may require creative solutions to maximize benefits. For instance, lenders can offer low-to-no cost bridge loans until tax credits are refunded, helping customers overcome cash flow challenges. Creative financing solutions may also be needed for borrowers without enough tax liability to realize the full tax credit refund, especially since ‘direct pay’ is only available to tax-exempt entities.

Community lenders have been putting on a decades-long masterclass in delivering creative financing that overcomes market barriers — finding ways to capitalize on the opportunity presented by IRA incentives will require putting that ingenuity to work.

4. Clear, standardized products and processes will drive meaningful uptake

Green lending trainings and bootcamps are critical to building a core understanding of the risks and opportunities in the clean energy transition. With this, lenders can design strategies and sell products. Yet, it is not reasonable to expect every community lender to develop internal climate expertise. Lenders traditionally rely on well-established standards to underwrite projects efficiently and confidently, but eligibility criteria for GGRF-funded projects are still unclear. Working toward market alignment around clear standards will ultimately reduce dependencies on specialized experts, enabling credit and risk officers, who often have little time to spare, to get involved.

Community lenders working toward shared objectives are stronger in numbers. Specifically, shared climate “back offices” can help capacity-strapped lenders integrate green processes and products more quickly. Further, centralized platforms for tools, resources, and best practices can streamline information access and drive market-wide learning.

The road ahead is bright and green

In a convening of experts ready to take on a new challenge, this bootcamp emphasized the needs of a developing market. Training opportunities need to expand ten-fold, serving more lenders, at more levels, in more formats. Centralized and standardized resources need to be established for deeper learning and operations. Overall, lenders need more support in developing clear strategies for client engagement, maximizing community benefits, and developing products that work for everyone.

RMI is dedicated to providing ongoing support for community lenders as they take on their role in the clean energy transition. Armed with knowledge, innovation, and a shared commitment to positive change, community lenders are poised to lead the charge towards a more resilient and equitable future.

For more information on how to get involved in one of our trainings, please contact Whitney Mann at wmann@rmi.org.

The GGRF bootcamp was made possible with support from the National Association for Latino Community Asset Builders (NALCAB), the National Bankers Association Foundation (NBAF), and the African American Alliance of CDFI CEOs (The Alliance).