GCF Signals New Way to Fund Green Banks in U.S. and Abroad

Last week, the Green Bank world hit an exciting and crucial milestone. The Green Climate Fund (GCF) became the first multilateral institution in the world to capitalize and fund a local Green Bank in a developing nation. The GCF approved a $55 million loan to the Development Bank of Southern Africa’s (DBSA) new Climate Finance Facility (CFF), and also provided $600,000 for an operating grant. Once launched, the CFF will likely be the first operational Green Bank in the developing world, utilizing the models implemented by Green Banks in places like the U.K, Australia and the United States.

This is noteworthy for several reasons. The first is the obvious one – as made plainly clear by the Intergovernmental Panel on Climate Change, we are losing the climate battle and have little time left to save the planet. Driving as much capital as possible into all corners of the globe is vital, especially carbon-laden places like Southern Africa. Using capital sources like the GCF to support Green Banks, which themselves aim to catalyze further investment, shows a new way to aim for scale.

Second, it is an important precedent because it shows other development-focused institutions, like multilateral development banks (MDBs), ways to deploy their capital. Locally-led initiatives like Green Banks are aimed at crowding-in more private investment. MDBs need to wring every dollar of leverage they can out of their investments in climate, and place-based Green Banks are a perfect vehicle for that objective.

And perhaps most importantly, the GCF funding loudly announces to the world that the Green Bank model is evolving. No longer is the Green Bank story one where the only pools of capital are “public and private.” Green Banks historically have been solely capitalized by the governments that created them, which then use those public dollars to support private investment. This bimodal structure needs a refresh.

Public funds, in both developed and developing world, are far too scarce and new sources of capital are now available that Green Banks can deploy. Blending different sources of capital to raise large pools of funds is what is needed for Green Banks to be scalable and innovative drivers of climate investment. The work of securing public capital at scale in countries like the U.S. can be arduously slow. And public capital can be even scarcer in developing countries, so new sources – like the GCF – are a valuable addition to the traditional model.

CGC pivoted to executing this new approach in 2017. And Green Bank partners are leading the way, too. The Climate Access Fund (CAF), a non-governmental non-profit Green Bank in Maryland, quickly secured $2 million from local foundation and impact investments to pilot a low-income focused community solar project. CGC helped incubate CAF, structuring products and raising the seed capital. And by identifying market gaps and structuring innovative financial solutions, CAF attracted the interest of the state government, which then provided $1 million in matching guarantees.

NY Green Bank is raising $1 billion of private capital to expand its footprint outside New York State. The Connecticut Green Bank created a non-profit spin-off, Inclusive Prosperity Capital, to work in other states, and is securing a foundation guarantee which it can use as credit protection to raise funds from a range of capital providers. Both saw an opportunity to use the infrastructure they already built to bring in new, diverse sources of funding, rather than waiting and relying purely on their own governments to fund them. The New York City Energy Efficiency Corporation (NYCEEC) has used diverse sources of capital since its founding, leading the way on many innovative program related investment (PRI) structures.

Green Banks continue to create and deploy innovative methods for financing clean energy and driving more total investment into the market. But the vital evolution, that we are now seeing play out, is a move to take advantage of the full suite of capital sources available. Green Banks can and should have balance sheets with public, private, mission, impact, development and foundation dollars.

This is CGC’s new approach – working with Green Banks of all forms to raise money from all of these sources. The GCF and DBSA should be congratulated for supporting the new generation of Green Banks. ClimateWorks Foundation and Convergence Blended Finance deserve credit for being the first foundations to see this opportunity and funding CGC and the CFF formation. Now it is time for established and new Green Banks around the world to continue raising large diverse pools of capital to drive maximum investment to all corners of the globe.

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