Making the Most of the Greenhouse Gas Reduction Fund and Historic Climate Investments: Keys for Transformative Climate Finance

BlogClimate FinanceFellows

Emman Uy April 11, 2024

On April 4th, 2024 Vice President Kamala Harris announced the awardees for the monumental $27 billion Greenhouse Gas Reduction Fund, which will finance climate projects and facilitate more investment in communities to build climate resilience and clean energy capacity. The Greenlining Institute is proud to have been selected, as part of the Justice Climate Fund application, to support implementation of the GGRF through the Clean Communities Investment Accelerator. This $940 million grant will support efforts to connect underserved communities with financing to promote clean energy, reduce emissions, and invest in communities of color and low-income communities disproportionately impacted by climate change.

While recent federal investments like GGRF have made significant strides in combating climate change, substantial financial gaps continue to persist due to systemic barriers and historic disinvestment that low-income communities and communities of color (what GGRF names as LIDACs or low-income disadvantaged communities) have been experiencing for generations. The goal of the GGRF is to bridge these gaps and ensure that a maximum amount of the resources create tangible benefits for formerly redlined communities vulnerable to the impacts of climate change.

Addressing these disparities requires a fundamental shift in financial practices

Traditional financial institutions often employ non-transparent, predatory, and discriminatory underwriting practices. Financial institutions must offer opportunities for transformational finance that delivers meaningful community benefits, wealth-building opportunities, community ownership models, and consumer protection. Federal investments like the Infrastructure Investment and Jobs Act alongside the other provisions of the Inflation Reduction Act can go a long way to help meet these needs. However, the GGRF, with its requirements to benefit LIDACs and its structure of leveraging networks of green banks and community lenders with a track record in investing in historically underinvested communities, has the potential to deliver on transformative ambitions.

Here are a few recommendations to bridge key climate finance gaps and maximize the impact of these investments to better reach the communities that need them most. These recommendations are drawn from established financial products and effective programs delivered by government entities, financial institutions, and community organizations.

• Communities need affordable and secure financing in order to finance climate justice projects and prioritize building climate resilience in their communities. This includes offering loans at lower interest rates. GGRF is offering resources so financial institutions can make this goal a reality. Ensuring the accessibility of these funds is imperative for reaching historically underserved communities and bridging long-standing gaps in accessing funds.
• Right-sizing loans via collaboration is key. By partnering with local lenders or governments, financial institutions can streamline processes and reduce costs in order to facilitate small-dollar loans, the kinds of loans big banks are not willing to make, making it easier for community members to access the funds they need to kickstart their projects and initiatives.
• Because of cycles of disinvestment, getting projects off the ground is often the hardest part in under-resourced communities. By providing "recoverable" or forgivable loans for initial costs like land acquisition and feasibility studies, financial institutions can empower communities to turn their ideas into reality without being burdened by upfront expenses.
• Time is of the essence,especially when it comes to critical, emissions -reducing projects like energy efficiency and decarbonization. Flexible financing options can bridge funding gaps and ensure that initiatives can move forward without delay. Whether it's through expedited loan processes or innovative funding mechanisms, quick solutions are essential for addressing pressing needs.
• Fairness and clarity are non-negotiable. We need to know how decisions about who gets loans are made.Financial institutions must ensure clear disclosure and fair evaluation of loan criteria to address biases and limitations. By promoting transparency in underwriting practices, institutions can build trust with communities and ensure that funding decisions are made equitably and ethically.
• In addition to financial products and services, building partnerships is crucial to addressing community needs, ensuring resources are distributed equitably, and the impact of climate resilience initiatives are maximized. By collaborating with various organizations like housing authorities, transit agencies, and utilities, recipients of GGRF dollars can ensure resources are allocated efficiently to formerly redlined communities through tailored financial mechanisms. Working closely with regulatory bodies and state agencies also ensures funding is directed to communities that most need climate resilient investments.
• Success of the GGRF also requires a concerted effort to empower LIDACs through consumer protections, technical assistance, and transparency. Building community capacity through grants and technical assistance results in more resilient communities prepared to leverage federal investments and available financing into opportunities. Transparency can be achieved through a representative Community Advisory Board that allows for meaningful feedback and decision-making power, alongside rigorous evaluation and transparency tools such as the California Climate Investments Project Map. Consumer protections in the form of excluding false solutions like biofuels or hydrogen while championing for protections such as energy bill savings measures, anti-displacement policy, and tenant protections should be prioritized and embedded into the strategies for projects.

A sustainable path forward for transformative finance hinges on a proactive shift in focus beyond merely addressing financial gaps to prioritizing community leadership and fostering equitable access. Implementing these recommendations have the potential to not only bridge financial gaps, but also become a catalyst for lasting positive change and resilience-building initiatives in communities suffering from climate injustice.

To learn more about the GGRF, read more in our blog post, this fact sheet, as well as this comment letter submitted in partnership with Just Solutions Collective to the California Infrastructure Bank with recommendations on GGRF implementation in California. The Greenlining Institute also submitted a comment letter to federal regulators outlining key improvements needed in related legislation - the Community Reinvestment Act - including applying an explicit racial equity framework and acknowledging climate change as a risk multiplier.