Last month, Womble Bond Dickinson launched “Doing Well by Doing Good,” a thought leadership series focused on how environmental and social governance impacts businesses. The following article summarizes “Green Finance is Infrastructure: The $ 100 Billion Opportunity for Green Banks,” an overview of the series. Click here to view the on-demand presentation (registration is required).
About the speakers
- Damon burns, President and CEO, Finance New Orleans
- Mike Dow, partner, Womble Bond Dickinson (United States)
- Eli Hopson, CEO, DC Green Bank
- Alex kragie, Director, American Green Bank Consortium
- Viktor Osasu, Partner, Womble Bond Dickinson (United Kingdom)
- Kerry O’Neill, CEO, Inclusive Prosperity Capital
As with any business, implementing an ESG (Environmental, Social, Governance) change requires money. Green banks seek to fund the ESG movement by harnessing the power of private capital to solve pressing global problems.
Green banks are typically non-profit organizations that use public capital to raise private funds for ESG purposes.
“We go where private lenders aren’t involved – and we take them with us,” Kragie said. The objective is not to compete with private lenders but to work with them and facilitate investments in essential areas that are not sufficiently served.
Green Banking: a new approach to long-standing challenges
So how is the concept of green banking different? “One concept of green banks is this public-private partnership,” O’Neill said. “We are also mission oriented. Many green banks are tackling climate change or environmental challenges, while others are also tackling funding inequalities by providing capital to underserved communities.
Hopson calls this latest mission “inclusive prosperity” and says green banks “are filling these gaps in the market.”
For example, Finance New Orleans sees green banks as a way to reinvent a city hard hit over the past two decades by Hurricane Katrina, the Gulf of Mexico oil spill and, more recently, the COVID-19 pandemic. Finance New Orleans has provided mortgage financing to low and modest income families for more than four decades.
In 2019, Finance New Orleans became a green bank, expanding its reach to include climate change initiatives such as energy efficiency, stormwater management, and green infrastructure projects for homeowners, businesses and local governments. The organization has converted into a green bank to help the city achieve the objectives set in a 2015 climate plan by providing a necessary financing vehicle.
“We see becoming a green bank as an opportunity to provide a substantial amount of capital in needed areas,” Burns said. “It’s a chance to reinvent New Orleans. “
DC Green Bank works with building owners, capital lenders, business owners and entrepreneurs. But it also has a community-driven component, working with places of worship, health and education facilities, non-profit organizations, etc. to make immediate building improvements and energy system replacements and upgrades. Recently, the DC Green Bank made its second loan for solar power and green building and is studying stormwater retention efforts to reduce flooding and water pollution, as well as electric public transportation. Hopson said the organization wants all residents of the district to benefit from its investments.
Inclusive Prosperity Capital, a non-government sponsored green bank, describes its goal in part as “engaging with communities most affected by climate change.” The Green Bank provides capital for green energy upgrades in multi-family and single-family dwellings, commercial buildings and government facilities and has particular experience in the field of solar energy.
Interest rates on green bank loans are similar to those offered by traditional banks, but they are available to finance projects that other lenders may have turned down. The organization or product will need to meet the objectives of the particular bank (e.g. climate change or serve underrepresented communities).
The growth – and potential – of the green bank
Green Bank members of the US Green Bank Consortium have made approximately $ 7 billion in investments over the past decade. Kragie said that for every $ 1 of public funds spent by its members, $ 3 of new private investment is generated. He hopes the concept can expand to become more national, with the federal government playing a partnership role (a step that is more likely than ever to happen in today’s political and social environment.
The legislation currently before Congress, HR 806, would create the Clean Energy & Sustainability Accelerator, described by the Coalition for Green Capital as an independent, non-partisan, nonprofit financial entity that will function as the United States’ National Green Bank. It will use public funds to leverage more private investment to accelerate the deployment of clean and resilient infrastructure in every community across the United States. It will also have a start-up division, which will provide technical assistance and seed funding to states and other political subdivisions to establish green banks in states and political subdivisions where such banks do not currently exist.
The accelerator would start with a $ 100 billion federal investment, and supporters say it would generate $ 463 billion in public-private investment in the first four years. As currently envisioned, the accelerator would seek investments and purchases in renewable energy, energy storage, transport, transmission, resilience, efficiency, reforestation, agriculture and industrial decarbonization. It would target 40 percent of its funding to connect with the most needed jobs.
A national green bank would provide national coverage in an industry that is currently widespread but operates primarily at state and local levels. According to the Coalition for Green Capital, 14 states have green banks and 19 more are in development. More than a dozen states, including populated states like Georgia and Texas, have yet to form a green bank.
Kragie said the good news for the industry is that the concept of a national green bank enjoys bipartisan support. Progressives are drawn to the focus on climate change, while fiscal conservatives appreciate the market-based approach to investing. “It’s a lot easier when we stand up for something that a lot of people want,” he said.
Green banking is also well advanced in the UK. One of the most important developments, according to Osasu, is the recent announcement by the UK government of the formation of a national infrastructure bank which will be headquartered in Leeds, one of the financial centers established outside London with excellent transport links across the UK. The bank will start with a capital of £ 12bn, with a goal of funding a minimum of £ 22bn in environmentally friendly projects. Osasu said forming a green bank would help encourage private investment in Britain’s infrastructure space and help tackle climate change and level the country by supporting regional economic growth.
In addition, the UK government recently announced that it will issue its first sovereign green bond, with the aim of issuing at least 15 billion gilts this year. The bonds and the infrastructure bank are part of an ambitious climate change plan to make the UK a zero greenhouse gas emissions country by 2050 and meet the challenges of BREXIT and the resumption of COVID-19.
Green banking is still a relatively new concept on both sides of the Atlantic. So Burns said he expects him to continue to evolve over the next 10 to 15 years. “There is still a lot of innovation to be done in this space,” he said.