What Did Philanthropy Do to Set the Stage for $27 Billion in Federal Climate Financing?

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The announcement of $27 billion in awards through the EPA’s Greenhouse Gas Reduction Fund, or GGRF, last month marks the greatest realization yet of a vision for green financing that dates to the early days of the Obama administration. And philanthropy has been involved from the start.

The journey began with an idea for a national green bank more than 15 years ago, has seen the creation of state green banks across the country, and has reached its apex — to date — in this new round of awards. A range of institutions, including green banks, national nonprofits and community development financial institutions (CDFIs), now have billions of federal dollars to invest in a clean energy transition. That, by the way, is essentially the definition of a green bank: mission-driven institutions that mobilize public and private financing to back the climate transformation.

In this case, philanthropy played a classic and powerful role as an indirect enabler of federal action — leveraging millions of dollars in grants toward public spending that comes to billions of dollars, and hopefully triggers much more. That dynamic is particularly relevant now as a torrent of federal funding flows following the passage of the climate-focused Inflation Reduction Act, as well as the American Rescue Plan, the Bipartisan Infrastructure Law and the CHIPS and Science Act.

As one of the former administration officials who was key to the push for green banks told me after the Inflation Reduction Act passed, foundations have been a key part of this rollout. “This is a triumph for the idea of public-private investment and a huge success for philanthropy,” said Reed Hundt, president and founder of the Coalition for Green Capital, which is widely credited as a driving force behind the funding for green banks included in the Inflation Reduction Act, and received $5 billion from the GGRF. When we spoke in 2022, he pointed out that his group had received about $25 million to date from a group of more than 20 philanthropies. “They're getting a 1,000-times return on their investment.”

Hundt wasn’t exaggerating. The GGRF numbers are big: The government announced $20 billion in awards to eight recipients on April 4 and another $7 billion in solar grants for 60 organizations on April 22. Yet those figures are not a full account of the impact. For one thing, the administration is targeting a nearly 7-to-1 match of private dollars to the federal funds for the first batch of recipients, and McKinsey has estimated the federal funding could mobilize as much as 12 times more in private investments. And a much larger number of organizations will see benefits from these dollars, including many other philanthropic grantees.

Based on conversations with more than half a dozen funders and recipients, I’ve collected stories of some of the roles that philanthropic grantmakers played in reaching this point. One way to look it, according to John Balbach, director of impact investments at the MacArthur Foundation, is that philanthropy’s role played out across three phases. 

The first phase was pre-legislation, specifically before the Inflation Reduction Act and the funding it contains for green banks. During this period, philanthropies like the MacArthur Foundation, Energy Foundation, ClimateWorks Foundation, Ford Foundation and Kresge Foundation helped CDFIs grow and prepare to play a leading role in financing a green transition, Balbach said. Funding also sought to connect CDFIs to climate finance. The GGRF ultimately created a “forcing function” to make that connection at scale — “and that presents an enormous opportunity,” he said.

There was also a lot of policy development to close green financing gaps, said Alekhya Mukkavilli, a program manager with ClimateWorks’ sustainable finance team. Support went to Hundt’s group, but also organizations like Rocky Mountain Institute and the National Resources Defense Council, and weathered setbacks when initial legislative drafts did not move forward. “It was really playing the long game,”  she said. “There was a lot of coalition-building. Nothing ever seemed that straightforward. But I think the outcome is something we're happy with, given that different people get to benefit from it.”

The second phase was post-legislation, but pre-awards. Philanthropies sought to help organizations make the necessary preparations to receive GGRF funding and to “support the various coalitions in an agnostic way,” Balbach said, noting MacArthur’s support for Climate United ($7 billion from GGRF), Inclusiv ($1.9 billion) and Opportunity Finance Network. Invest in Our Future, the pooled fund, was announced during this period, and helped channel some of this funding.

The third phase is where we are now: post-award but pre-receipt of funding. Philanthropic funders are trying to prepare the field for the arrival of this financing later this year. That means efforts continue to build the ability of organizations in disinvested communities to win financing. “That doesn't start and stop in one phase,” Balbach said. “That is something that we have to continue to build over time.”

Below are four stories from smaller players of how philanthropy helped prepare the country for this moment.

How a Midwest funder played a local role

The Goldilocks projects started landing in the inboxes of Aimee Witteman and others at Minnesota’s McKnight Foundation in the mid-2010s. For example, the pentecostal church Shiloh Temple International Ministries was ready to put a community solar array on its roof that could power 50 households in an underinvested area of Minneapolis. Yet that proposal and others were just not quite the right size.

Such projects typically needed $1 million to $3 million. That was far greater than the foundation’s Midwest climate and energy program could manage, given its average grant size of about $250,000. Meanwhile, it was far smaller than the minimum for the foundation’s program-related investments, which was typically around $10 million or more. Nor were the proposals usually a fit for private investors.

“We were seeing a lot of projects,” said Witteman, who left McKnight in 2020 and now works for Rewiring America, one of the GGRF recipients. “Community-based, clean energy projects were coming to us that made sense on paper, and maybe even eventually would turn a profit, but for various reasons, they were falling through the cracks.”

Minnesota had passed a landmark community solar policy in 2013, yet many projects could not get financing. Inspired by green banks launched in Connecticut and New York, McKnight began supporting state advocacy and policy on the topic, including a feasibility study. Those efforts helped lead to Minnesota establishing a green bank in 2023, known as MnCIFA, which will start distributing funds this summer. It was seeded with $45 million, but the hope is it can also help move funding from programs like GGRF.

To ensure the bank is a success, the McKnight Foundation funded a temporary consultant to help out for a year, from holding board meetings to doing outreach. “What we've heard from the Department of Commerce is that without that additional capacity, MnCIFA wouldn't be where it is today,” said Ben Passer, senior program officer in the foundation’s climate and energy program. 

McKnight has also played the more traditional role of a convener. After the IRA passed, it brought together about 40 Minnesota nonprofit, government and financial sector partners, and it’s been doing regular virtual gatherings with nearly a dozen Midwest funders, including the MacArthur Foundation, Kresge Foundation and Builders Initiative. “This is a unique and exciting opportunity to combine our grantmaking and investment folks and efforts in the same conversation,” Passer said.

How a climate justice intermediary supported equity

When a new government fund opens, the applicants who can file fastest are typically those acting alone. Organizations that take the time to consult with communities about their needs and demands are almost always slower to act. That dynamic was on the minds of Jodeen Olguín-Tayler and the team at the Climate and Clean Energy Equity Fund when the Greenhouse Gas Reduction Fund was announced.

The result was the GGRF Equity Alliance. The alliance’s core goal is that institutions and lenders have a community process for how GGRF dollars are spent, and make investments that ensure local organizations both participate and benefit.

The risk otherwise is a “hollow process that brings together communities who have been historically well resourced to the table, folks like kids from Silicon Valley,” said Olguín-Tayler, vice president of strategic partnerships at the Climate and Clean Energy Equity Fund. Such donors "might have a plan on how to use the funds, but it takes year-over-year multi-year investment in local grassroots communities, particularly communities that have been really harmed by the fossil fuel economy" to ensure a process that benefits locals. 

The fund joined with the technical assistance think tank Just Solutions and several other partners in March 2023 to draft a set of best practices for distributing funding. The alliance has created a 49-page guide for applicants on how to implement its principles and a related pledge that has more than 60 signatories.

Those efforts have been influential. Four of the eight GGRF awardees announced in early April are signatories. Major philanthropies, such as the William and Flora Hewlett Foundation, have told the Climate and Clean Energy Equity Fund they are using the guide to plan related grantmaking, Olguín-Tayler said.

Aside from its role with the alliance, the Climate and Clean Energy Equity Fund has helped prepare groups across the country for this moment, including giving many their first-ever climate-related grant. “Had we not been funding grantees who make connections between economic justice or racial justice work and these investments in climate action, I think we would have continued to see Black, Indigenous, Latinx, AAPI organizations sort of left out of some of the opportunities that these funds are meant to bring to local communities,” Olguín-Tayler said. 

How one of the major IRA implementation funds helped

After the passage of the Inflation Reduction Act, a coalition of major philanthropies set up the three-year, $180 million Invest in Our Future pooled fund to attempt to make the most of the more than $1 trillion in federal funding being spent on climate action, infrastructure and jobs. Its lead backers were the Hewlett Foundation, MacArthur Foundation, Packard Foundation and Rockefeller Foundation — along with Bill Gates’ investment platform Breakthrough Energy. And among its priorities was helping organizations win funding from GGRF.

Last year, its first in operation, Invest in Our Future made grants to four of the eight organizations that won funding in the government’s initial $20 billion round of GGRF awards, said Peter Colavito, Invest in Our Future’s executive director. Three of those grants, totaling $2.9 million, were direct support for applications, while the other was for general support. The fund declined to provide details, but the fund’s website lists GGRF recipients Inclusiv, Opportunity Finance Network and Climate United among its grantees.

This year, Invest in Our Future has committed to supporting five green banks, focusing on institutions providing affordable financing in underserved communities, Colavito said. One of those grants, to the North Carolina Clean Energy Fund, is complete, while the other four are still in process, so the recipients were not identified. Each of the five have won GGRF funding directly or as part of a consortium, he said.

The fund is trying to help address — and raise philanthropy’s awareness of — the wide range of support needed to ensure recipients are fully prepared, ranging from hiring new staff and raising additional capital to securing legal advice and setting up trainings. “It's different than, for example, building a battery factory somewhere,” Colavito said. “This is a much more distributed kind of financing.”

How philanthropy helped a Native American nonprofit 

Pete Upton and his staff at the Native CDFI Network have historically had limited success getting the attention of megadonors. The nonprofit, which represents 130 certified Native CDFIs and supporters, has just a handful of funders, including the Northwest Area Foundation and Robert Wood Johnson Foundation. But a philanthropic grant in late 2023 helped the federal government see the network’s potential.

Last fall, the regrantor Energy Foundation issued a one-year, $200,000 project grant to the Native CDFI Network. The money went toward a team of consultants to help the network prepare an application for the Environmental Protection Agency that topped 70 pages. It was a big undertaking for a lean team with an operating budget of about $1 million. But this month, the network got a thumbs up: It has received $400 million (you read that right) from the EPA through the Greenhouse Gas Reduction Fund. 

The “once-in-a-lifetime” injection of capital comes with a steep learning curve, but it will enable network members to fund everything from rooftop solar projects and community wind turbines to the replacement of old diesel generators and electrifying fleets such as school buses, said Upton, who is a member of the Ponca tribe of Nebraska. “It’ll have a huge impact on what we’re doing.”

“Without it, we probably couldn’t have been as organized,” Upton said of the Energy Foundation grant. “So many times, what's missing, in Indian country and especially for the Native CDFI Network, is the funding that allows us to do our due diligence and actually prepare a complex grant application, a competitive one.”

Correction (May 3, 2024): Minnesota's green bank issued its first loan in late March. An earlier version of this story incorrectly stated it had not yet begun distributing funding.