Green Banks

Description and History

A green bank is a mission-driven financial entity that leverages both public and private financial capital to resource climate-friendly projects. The term green “bank” is actually a misnomer as green banks—unlike traditional banks—do not take deposits (NCEL 2024). Instead, they use a variety of financial tools to make investments in green infrastructure that is not adequately supported by private markets (EPA 2024). Essentially, green banks use public funds as a catalyst to attract private investment, “a critical factor for achieving cost-competitive financing” for the green sector (NREL n.d.).

The green bank movement began in 2009 with the introduction of a bill to establish a national green bank (Coalition for Green Capital 2024). While that would not come to fruition until nearly two decades later, green banks began to pop up nationwide, beginning in Hartford in 2011 with the Connecticut Green Bank. Today, according to the Coalition for Green Capital, there are over 20 green bank-type organizations in the United States investing $442 million in clean energy in 2020 (2021). 

Green Banks, Locally Rooted Finance, and the Community Wealth Building Wedge 

As the need for climate-adaptive infrastructure increases, a few key criteria demonstrate how green banks can be a critical source of capital for a just transition to a green energy future: 

  • Green banks are not-for-profit financing entities vested in the public interest. Not only does this mean that they can take risks that markets often cannot, but also it means that they prioritize community impact over all else. This is especially important for improving access to clean (and, thus, more affordable!) energy for low-income and other underserved communities (EPA 2024).

  • Green banks are flexible by nature. While often administered by local or state agencies, green banks can also be nonprofit entities that are democratically governed by community members. Additionally, they are often institutions—not individual programs—so they are designed as long-standing, durable efforts to resist climate change (Coalition for Green Capital 2024). 

  • Green banks provide financing and, sometimes, grant-based capital, across a multitude of target sectors, including solar, energy, agriculture, housing, and transportation, addressing the climate crisis on a diversity of fronts (EPA 2024; Whitney et al. 2020) Additionally, while often initially financed using public funds, the purpose of a green bank is to entice private investments, thereby filling a gap in and expanding the existing market for climate-friendly financing (NRDC 2024). 

Further, green banks can advance development across other pillars of Community Wealth Building. According to one report, when Connecticut’s Green Bank invested $240 million in residential solar, the investment created nearly 1,000 jobs in the region (Weiss & Konschnik 2018). In fact, money the banks invest in renewable energy would create up to three times more jobs than the same investment in the fossil fuel sector. For small businesses, this investment is also critical (Whitney et al. 2020). For example, the New York Green Bank’s financing supported nine New York companies to expand operations and seven others to grow their business in the state (Weiss & Konschnik 2018). Taken further, green banks could also be used to support the development of inclusive and democratic enterprises. 

Examples

Connecticut Green Bank

Since its inception in 2011, the Connecticut Green Bank has facilitated $2.4 billion in green investments (Lan 2024) and created 4,000 direct and indirect jobs. The bank is capitalized through a systems benefit charge added to all Connecticut residents’ energy bills; funding from the Regional Greenhouse Gas Initiative, a multistate, market-based carbon cap-and-trade program; and bond sales. To ensure equity, the bank has a Multifamily Catalyst Fund dedicated specifically to improving the energy efficiency of affordable housing. The bank also requires that at least one person on its board come from a group representing residents or low-income people.

Greenhouse Gas Reduction Fund aka the “National Green Bank”

In 2024, the Biden administration authorized the Environmental Protection Agency (EPA) to create the Greenhouse Gas Reduction Fund, an historic $27 billion investment in clean energy infrastructure in the United States, familiarly known as the National Green Bank (EPA 2024). This fund will provide financial support to states, municipalities, tribal governments, and nonprofit organizations, including existing community-based lenders, to advance investments in renewable energy and clean transportation (Turrentine 2022), particularly for low-income communities. While the governance of this Fund has yet to be finalized, this will be the biggest action the United States has taken to finance climate positive infrastructure.

Challenges & Limitations

Like many locally rooted financial interventions, green banks are not without their critics. First and foremost, creating a green bank is difficult; while not subject to state and federal banking regulations (Weiss & Konschnik 2018), green banks may require an enabling piece of legislation (EPA 2024). Once created, availability and access to finance is variable and dependent on a myriad of factors, including—though not limited to—political will and the legislative and/or regulatory environment in which the green bank will operate (Whitney et al. 2020). Further, low- and middle-income beneficiaries of green bank investments might find themselves unprotected by traditional consumer protections (EPA 2024). Finally, green banks must be properly governed to ensure that those most vulnerable to climate change receive the investments their communities desperately need. Without a solid equity lens, investments would simply bolster climate-resilient enclaves for the wealthy and leave low-income neighborhoods struggling with energy-inefficient infrastructure and continued vulnerability to climate catastrophe.

Taking It Forward 

In spite of these challenges, the time is now to invest in green, sustainable projects and infrastructure. According to a 2021 report by the American Green Bank Consortium and the Coalition for Green Capital, “researchers at Princeton University have identified at least $2.5 trillion in additional investment on top of business-as-usual in the next ten years in the U.S. that is required to put the country on track to achieve net-zero carbon emissions by 2050” (2021). Green banks are a critical piece of the financial infrastructure needed to meet those goals. 

Because of their malleable structure and impact-oriented ethos, green banks are well-positioned to invest in both small and large scale projects that benefit marginalized communities who have been shunned by private markets. Further, because they employ financing—not just grantmaking—strategies, the returns on green bank investments would not only facilitate green market development across sectors, but would also increase sustainable cash flow for climate-friendly technologies and infrastructure, creating spillover effects across all five pillars of CWB for communities (Weiss & Konschnik 2018). 

Starting a green bank in your community requires—first and foremost—a commitment to developing strong public/private partnerships. Then, legislation permitting, communities must collectively decide on organizational and governance structures. Finally, all green banks need a plan for financial sustainability, from seed investment to capital deployment to managing and deploying returns. 

Additional Resources