When the Environmental Protection Agency (EPA) announced the $27 billion Greenhouse Gas Reduction Fund (GGRF), it not only created an opportunity for minority-owned and -operated banks (MDIs or minority depository institutions) to use these funds, but also empowered them to help underserved communities battle climate change. The support of MDIs is crucial as they are often located in minority and low-income areas already dealing with the effects of pollution and climate-related effects. Studies from the EPA show that people of color are 3.7 times more likely than white people to live in places with substantial air pollution and are also more exposed to heat stress and extreme weather events.
In April 2024, the National Bankers Association/National Bankers Association Foundation co-sponsored a GGRF boot camp and invited their member banks. The event that RMI led was a collaborative effort, diving into the intricacies of green solutions and explaining how incentives from the Inflation Reduction Act could help make them more affordable to economically disadvantaged communities. The 75 community bankers in attendance took the first step in embracing their new roles as green lending leaders. It also allowed the National Bankers Association to get valuable feedback from the participants, demonstrating the importance of their input in shaping future support strategies. Below are some of the key takeaways from the event.
The Devil is in the Details:
Participants felt the session was highly beneficial, but there was much information to digest. Follow-up sessions to share developments and best practices, examine case studies, and define exact loan products to apply for GGRF funds is a viable next step for many. While some community lenders have already started offering green loan products, it is new for most participants, and the process is complex. Many are only willing to invest in further resources and capacity building once they gain more clarity on what clean technology projects entail. Some participants saw the opportunity to integrate green lending into existing business lines and portfolios by re-tooling existing products and identify qualified projects that the banks are already engaged (or potentially) engaged in to accelerate the process.
Building Awareness and Trust:
Attendees believe that gaining a deeper understanding of climate change implications can equip them to communicate the benefits of clean technologies to their communities and customers effectively. The banks need more data-driven examples to build awareness and trust with their clients. They need to articulate how green technologies will turn into an economic benefit. For instance, as new products and skills are required, this could offer more opportunities for small businesses. Increased demand for careers in the sector could uplift communities. Bankers must also be able to answer questions such as how rooftop solar can benefit residents in co-ops and apartment buildings by reducing their energy bills or how net metering works, allowing excess energy produced by a solar system to be sent back to the grid for credit. Ultimately, in order to build momentum, they need climate-change expertise and resources to educate their communities.
Developing Standardized Practices and Products:
Since the GGRF program is still new, many unknowns regarding eligibility criteria exist. Banks traditionally rely on established processes to underwrite projects efficiently, so it will be vital to have market alignment around clear standards to reduce dependencies on specialized experts. The National Bankers Association and our partners, such as RMI, can help by offering further training and sharing case studies and best practices to enable minority banks to get up to speed more quickly and learn how to streamline their processes. Other ways that banks could benefit from partnerships might be to share clean technology back offices, including tools and best practices. Shared resources will reduce the costs of developing in-house expertise on all things green.
Understanding the Inflation Reduction Act (IRA) and How it Works with GGRF:
The information on IRA tax credits and rebates was invaluable for many banks that attended. They gained insights into how these incentives, combined with GGRF, can make clean technologies more affordable. However, they also learned about the complexity of taking advantage of these incentives, including potential delays in tax credit refunds and the need for careful financial planning. MDIs must be creative to maximize benefits such as low-to-no-cost bridge loans until tax credits are refunded. Fortunately, mission-driven lenders have always had to be innovative to compete with larger and more established financial institutions, and maximizing opportunities in the clean energy sector will be no different.
Summary
Minority-owned and -operated banks are excited about the benefits clean energy could bring to their organizations and communities. However, the complexities involved in taking advantage of GGRF funds and IRA incentives are vast. To effectively compete, these institutions need additional support from strategic partners and the government. This support should include comprehensive education on the GGRF and IRA programs, access to case studies and best practices, and tools to streamline their processes. They also need resources to educate their clients and communities about the benefits and opportunities of clean energy. Only with these resources and support can the GGRF fulfill its promise to help communities of color prepare for the worst effects of climate change and reap the benefits of any large-scale transformation.
To support or partner with minority banks on a clean energy transition, please contact info@nationalbankers.org.
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