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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a senior writer on the Sustainable1 thought leadership team.

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy.

Esther Whieldon: We're heading into the fall of 2022, and that means the season of climate events is upon us. Next week is Climate Week in New York City, which includes hundreds of climate-related events. And then we have this big UN Climate Change Conference, known as COP27 in Egypt in November. In last week's episode, we focused on the state of climate science.

And today, we're looking at another big piece of the sustainability puzzle that will be center stage at both the New York and COP27 events, and that topic is finance. As we've talked about before in this podcast, there's currently a massive gap between the current climate financing levels and what is needed to enable the low carbon transition.

We're talking trillions of dollars here. For example, the global steel industry alone needs an additional $200 billion to transition to net zero capable technologies, and then another $2 trillion to set up the underlying infrastructure. That's according to the World Economic Forum.

Lindsey Hall: In today's episode, we're exploring a recent development in the U.S. that could help address this financing gap at the local level. I'm referring to the U.S. Inflation Reduction Act that President Joe Biden signed into law August 16, 2022.

That law includes hundreds of billions of dollars in low carbon investments and tax credits, including $27 billion toward green banks and other local investments via the U.S. Environmental Production Agency’s Greenhouse Gas Reduction Fund. Quick primer here on green banks.

Green Banks can exist at any level of government, from city or county to state, even potentially on a federal level now. While green bank sometimes differ in scope and approach, they're generally created to leverage government funds to mobilize private investment into clean and resilient infrastructure on the local scale. And they also use several different financing techniques to fill gaps that traditional banks don't necessarily serve.

Esther Whieldon: That's right, Lindsey. Now the U.S. already has green banks in more than a dozen states. And to give you a sense of how these entities mobilize private investment, from 2011 through 2020, green banks collectively used $1.9 billion of their funds to generate $7 billion in clean energy investments. That's according to the American Green Bank Consortium's annual industry report.

Green banks also exist in other parts of the world, including Australia, Japan, Malaysia, Switzerland and the U.K. To hear more about green banks, we'll include a link in our show notes to an episode we did on this topic in 2021. To understand what this $27 billion measure in the inflation Reduction Act means, today, we're talking with Reed Hundt.

He is the CEO of the Coalition for Green Capital, which has helped organize a number of green banks. Reed told me he has sought for the U.S. Congress to fund the Federal Green Bank since 2009. And we'll also hear from Connecticut Green Bank President and CEO, Bryan Garcia. The Connecticut Green Bank was the nation's first green bank and was formed in 2011. First up, Bryan gives a quick breakdown of how the law divvies up that $27 billion.

Bryan Garcia: Within the greenhouse gas reduction fund, there are 2 parts to it. The first component is the zero-emission technologies component, includes $7 billion of competitive grants for states like us, municipalities, tribal governments and others for the purposes of providing grants, loans or other forms of financial assistance, including technical assistance to help enable low-income and disadvantaged communities deploy or benefit from zero-emission technologies like residential rooftop solar, heat pumps.

The second component is the low-income disadvantaged communities and general assistance component. This includes $20 billion, $8 billion for low income and disadvantaged communities and $12 billion for general assistance.

So we're now working through the leadership of the Coalition for Green Capital, the American Green Bank Consortium to really create a big green tent of local and state green banks, nonprofit green banks, community development financial institutions, credit unions and community banks to provide families and businesses with the capital they need to finance clean energy improvements on their properties.

Esther Whieldon: Okay. Now let's turn to my conversation with Reed. I started off by asking him, what's next for the Coalition for Green Capital now that the new law has passed. By the way, the coalition has helped organize a number of green banks that seek to accelerate investment in clean energy technologies.

Reed Hundt: There's a big celebration at the White House on September 16. The EPA somewhere in the next couple of weeks says on a certain date, I expect it will be the middle of November, but I don't know for sure. The EPA says, give us your business plan. We've been working on it more or less for 14 years. So I have a pretty good sense of what it will be. The business plan will say we want to create a big tent. You give us the $20 billion, please, agency.

And we will distribute it in 2 different ways. A very large amount of it will go to a network of community development financial institutions, community development credit unions, existing green banks and green banks that don't yet exist as we build a network of local lenders all across the country. And the other use of the money will be a regional or transborder projects that are -- that no single local green bank could handle.

Esther Whieldon: So can you give me a sense of like what kind of interregional projects are we talking about here?

Reed Hundt: So everyone, for example, knows that if the United States made a big push for offshore wind, it has potentially enough energy capacity in offshore wind to provide about 2x the energy needs of the United States. That's great. When you're a project developer and you want to build these large floating platforms over the horizon so that people on a beach holiday don't even see them, you've got to find some way to connect those platforms through an undersea cable to the local distribution grid.

And then that grid has to connect to a larger grid so that the power can be shared in multiple states. An example of what the National Green Bank might want to do is to contribute capital to that connection piece where the power then will be shared among many states. And it also might want to contribute capital along with the private sector to the battery storage onshore that will save the power when it's in the surplus and isn't needed. And that would be a generation plus storage facility.

So that's the kind of big ticket item that serves multiple states where we would say, we're happy to use our money to participate and accelerate the private sector's actions and multiply the total amount of investing by the private sector money. We would also hope that those private sector project developers would go to the loan program office at the Department of Energy and get capital there, too, because what we want is for the transition from carbon to clean to produce much cheaper electricity for the consumers to have it be clean electricity and to have it all be delivered much faster than the market currently is doing.

Esther Whieldon: So you mentioned how you'd be working with the private sector. So can you remind me how the financing sort of structure will work?

Reed Hundt: I would say there's 2 basic ways. Let's use the example of the New York green bank, which has invested more than $1 billion over the last 10 years. The New York green bank might issue a request for proposal, and it might say, we're interested in investing in offshore wind. Hello, private sector, give us your plans.

And then it's in receive mode. It receives the plans, and each plan will say, okay, here's who we are in the private sector. Here's what we want to do, and here's what we want to use your money for. And then it chooses among the proposals, makes a commitment and off the developers go. And then a different way would be illustrated by the Connecticut green bank, which would say, for example, with respect to distributed rooftop solar in Connecticut, let's have a meeting of all of the contractors in the state. They all come in.

There's maybe 50 or 100 or 200 or 300. These are people in the home repair business, in the renovation business, in the new building construction business. They come in, and the Connecticut green bank says, if you want to offer solar on the rooftop, here's a deal you can offer that our money will support. And then the contractors say, well, that's pretty interesting. I didn't know that it was that cheap. And then when they talk to their customers, they say, would you like solar on the roof? Here's a special deal you can get. So those are 2 different ways.

Esther Whieldon: And in both those cases, is it functioning more like a loan or underwriting than necessarily as like just giving the money to them, right? Like you expect to be repaid, right?

Reed Hundt: Yes, you would expect to get money back and to be -- to get more back over time than you put out. However, the public money would be patient. It would not expect to be paid back right away, and it would not expect to get a huge profit. But it would expect to be paid back eventually.

Esther Whieldon: So in all likelihood or in theory, the money that you're getting from here will continue to pay itself back and you'll continue to have funds. You won't necessarily have to come back to Congress to ask for more than.

Reed Hundt: Would not need to. It's always possible that if this is really successful, a future Congress would say, boy, this is really working. We'd like to give you more money if you could put more money to work. But I would not think that would happen unless success had already been proved.

Esther Whieldon: Yes, that makes sense. So I noticed a lot of the focus of the language has been on helping low to medium income households. How can you ensure that that's happening? Sort of what are the ways you're going to put that money to that use?

Reed Hundt: Target the specific communities.

Esther Whieldon: Yes, how you're going to ensure the...

Reed Hundt: That's the answer. Pick communities, pick cities, pick neighborhoods, pick houses and say -- well, let's take the contractor example, Esther. You meet with the contractors who actually are in those communities. And as in the story I just told you, meet with those contractors and say, here's the deal that you should offer these households knowing that if it's a low income household, they don't have cash to pay for an $8,000 heat pump right upfront.

So the deal they need to be offered should be no money down, you pay over a long period of time out of the savings in your electricity bill. So you very carefully target the household, the community, the contractors, the businesses in that community. You talk to the mayor in that community. This is not pie in the sky. This is what green banks have been doing for years. We just now get the chance to do it at scale.

And it's building on what many have already been doing. There's no new wheel being invented. It's just raowing it much faster. So for example, there's some number of community development financial institutions, maybe it's as many as 200 all across the country, I don't know the exact number, that have already been making green loans, meaning loaning money to consumers and small businesses to buy green products. Well, let's just make the general statement that the total number of those loans last year was $300 million.

I don't know the exact number, but let's just say that. Well, we'd like to have those institutions have the firepower to take that $300 million to $600 million and then take the $600 million to $1.2 billion and then onward and onward because the size of the potential market is in the hundreds of billions. So it's -- we're not talking now about being parsimonious about it. We're trying to get as many local nonprofits to be active in financing the transition as are willing.

Esther Whieldon: So let's zoom out a little bit here. And let's say, how does the creation of a federal green bank in the Greenhouse Gas Reduction Fund, how does that fit in with the efforts, the climate-related measures of the Inflation Reduction Act?

Reed Hundt: Really complementary, like one figure of a glove. So here's an example. Let's take a heat pump. What you'd like to be able to do is have a contractor in a particular community. Let's think of it as a low-income community. You'd like to have the contractor be able to say to the occupant of the house, could I please install a heat pump? Here's a no-money down contract for you to sign.

Also because of this legislation, here's a cash rebate that we can give you today. Also because of this legislation, behind that, there is a tax credit for the company that made the heat pump, so the price of the heat pump is lower than it otherwise would be. And also behind that, there's a manufacturer of the heat pump who borrowed $500 million or some big number from the loan program office to build a big facility so that heat pump is made more efficiently here in America.

So I've tried to tell you a story where the loan program office is involved. The tax credit is involved, the rebate is involved and the green bank finance is involved. You put all of them together and then the offer to the end user, it's supposed to be that the end user says, all I need to do is save money on my electricity bill by letting you attach a heat pump to my house. What's the bad part? And then the contractor says, there is no bad part. And now we've changed the standard of living better for that household and made a contribution to decarbonization.

Esther Whieldon: Now that we have a sense for how the Coalition for Green Capital hopes to leverage the funds, including in coordination with local and state green banks, let's return to my conversation with Bryan Garcia. Here he explaining how the law could impact the state's big climate-related targets.

Bryan Garcia: In terms of Connecticut, we have a 45% of greenhouse gas emission reduction from 2001 levels by 2030, which is consistent with the Biden administration's 50% reduction by 2030 goal. We've also got other really ambitious public policies on clean energy and climate. We've got a 40% renewable portfolio standard goal by 2030.

We've got an 80% weatherization goal by 2030, a 1,000 megawatt battery storage goal by 2030 and more recently, a 100% zero-emission school bus goal specifically in environmental justice communities by 2030. And we've also, as Connecticut green bank have set a goal of by 2025, no less than 40% of investment and benefits from our programs, our financing programs, our incentive programs that we administer being directed to vulnerable communities, which includes in Connecticut that has a specific definition, community reinvestment act eligible communities.

Those census tracks that have less than 80% median income as well as those communities identified in our environmental justice policy here in the state of Connecticut. So you can believe that the Connecticut green bank will definitely compete within the $7 billion to mobilize more and more private investment in our green economy in order to help us achieve those really ambitious public policy objectives.

And in our first decade of existence, the Connecticut green bank invested over $300 million of public revenues from Connecticut to mobilize nearly $2 billion of private investment. With funds from the greenhouse gas reduction fund, we can double that. $600 million of public revenues from Connecticut and the greenhouse gas reduction fund to mobilize $4 billion of private investment.

Esther Whieldon: So it sounds like there's plenty of funds for your state and the green bank for you guys to tap into then.

Bryan Garcia: Absolutely. So the greenhouse gas reduction fund actually allows us to think bigger about what we're currently doing and about what else we can do in the state of Connecticut. We've been waiting for this moment. We've been planning and we've got greater ambitions.

So we actually put together a $1.5 billion capital needs assessment for Connecticut in the following areas. It's really important that we develop a plug-and-play system for distributed energy resources in Connecticut, like solar PV, electric vehicles, heat pumps, fuel cells and more. So having an advanced metering infrastructure is really, really important. Each state needs that in order to help manage and dispatch those resources.

So back to our partnership with Eversource Energy. They are looking to build out a $500 million advanced metering infrastructure here in the state of Connecticut. So perhaps we can help them by reducing the cost of capital to finance that infrastructure while saving costs for Connecticut rate payers by creating this equitable modern grid through advanced metering infrastructure. So we're really excited by that.

Obviously, scaling up distributed energy resources and transitioning from fossil fuels is a big part of what we're doing, given our very ambitious public policies that I noted, renewable energy, weatherization, school buses. And I've spoken about various financing programs we administer like the smart e-loan.

Now imagine if we can keep interest rates down, especially for low-income families and continuously provide special interest rate offers, which we know is a market stimulant, then we can actually increase and accelerate the pace of technology adoption in our communities. Linked deposits is something that we're working on. That's all I'm going to say for now. Maybe we can reconnect in a year, and I'll tell you more about how those are going to work.

But also building resilient microgrids at critical facilities. Our state has experienced grid outages as a result of climate change, no doubt. We're experiencing heat domes, rain bombs, polar vortexes and other weather-related phenomenon that cause us to lose power. And for those of you who've been to New England, you know that it's very green here. We have a lot of trees.

And when those trees come down, it often takes the power lines down with it, helping cause a lot of families and businesses to lose power for days and weeks at a time. Now Connecticut is also the fuel cell state. So the Connecticut Green Bank can see a fuel cell in every community, providing power, waste heat and in some cases, hydrogen to provide the clean energy that's needed to improve the resilience of our communities against the impacts of climate change.

And lastly, as I noted before, on environmental infrastructure, we believe that through the greenhouse gas reduction fund, we can help enable more nature-based solutions. So through the leadership of Governor Lamont and the bipartisan support from the Connecticut General Assembly, our scope expanded beyond clean energy and now includes environmental infrastructure, which means that we can now invest in land conservation, parks and recreation, agriculture, water, our green infrastructure as well as resilience in adaptation, waste and recycling, carbon offsets and ecosystem services.

Our Board of Directors just approved our comprehensive plan, which continues our efforts to develop strategies that will enable greater private investment in our growing green economy. And the greenhouse gas reduction fund is going to put to work, connecting nature to people in this context, especially in vulnerable communities to not only reduce greenhouse gas emissions, but also increase our resilience to the impacts of climate change.

Again, all of these things, all of these concepts really takes a big green tent to address. It's just going to require public private partnerships across the board. So that's what we are up to here in Connecticut. And thanks to the greenhouse gas reduction fund within the Inflation Reduction Act. We look forward to continue to find innovative ways to mobilize private investment in our green economy to reduce costs on families, create jobs in our communities and confront climate change.

Esther Whieldon: As you heard, Lindsey, green banks and the Coalition for Green Capital have been working for years to address this climate finance gap on the local level. And Reed and Bryan explained to me how they aim to leverage these additional funds to finance an even greater pool of projects. And ultimately, they hope these funds will help speed up the pace of the low-carbon transition, including for low-income communities.

Lindsey Hall: And please stay tuned as we continue tracking the different ways in which the public and private sectors are working to close the climate finance gap. And we'll be on the ground in New York City for some of these conversations at Climate Week next week, which will include an event hosted by S&P Global Sustainable1. See the link and our show notes if you'd like to register.

Esther Whieldon: Thanks so much for listening to this episode of ESG Insider and a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time.

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