How CDFIs Help Mitigate Climate Change by Facilitating Clean Energy Funding for Low-Wealth Communities

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Community Development Financial Institutions (CDFIs) are implementing significant funding programs to help residents in low- and moderate-income (LMI) communities fight against the effects of climate change. 

They are best positioned to meet the climate justice objectives under the executive actions the Biden-Harris Administration began taking to confront the climate crisis early in their administration.

Here are some initiatives they're implementing to combat environmental injustice and decrease the disproportionate costs of climate change to people in underserved neighborhoods.

CDFIs finance energy efficiency and weatherization upgrades for older homes, clean energy projects, and sustainable businesses. This includes retrofitting buildings to improve energy efficiency, which not only reduces greenhouse gas emissions but also lowers energy costs for residents and businesses in low-wealth communities. 

CDFIs are increasingly investing in renewable energy projects in homes and businesses, helping LMI communities transition from fossil fuels to cleaner energy sources.

Financing energy efficiency projects in low-wealth communities not only reduces household energy burden. It also creates local jobs for contractors and workers. Investing in clean energy builds community wealth and resilience.

The Greenhouse Gas Reduction Fund (GGRF), enacted through the Inflation Reduction Act, is distributing $27 billion to mobilize financing for projects that reduce greenhouse gases and air pollution in LMI communities. 

CDFIs, as local financial institutions, are well-positioned to ensure these funds are accessible to communities disproportionately challenged by climate change and disasters. Federal funding helps CDFIs provide the capital for clean energy projects, making them more viable and attractive to private-sector investors.

The GGRF not only helps CDFIs offer more affordable financing options to LMI borrowers. It also enables investment in underserved areas overlooked by traditional lenders. Leveraging federal dollars amplifies CDFIs' impact, which they can convey through effective strategic impact communications to attract more funding.

Beyond financing, CDFIs offer training and coaching to equip individuals with skills for the clean energy sector jobs. That can build the green economy and sustainable employment in low-wealth communities, fostering ongoing economic growth in them. 

Initiatives like the Clean Communities Investment Accelerator (CCIA) also provide technical assistance to community lenders for effective distribution and implementation of clean energy funds.

These community infrastructure enhancement efforts (which go beyond traditional "capacity building") help develop a local workforce that acts as a pipeline into green jobs. The technical guidance ensures community lenders can deploy clean energy financing efficiently and towards high-impact projects founded on the needs of low-wealth communities.

CDFIs support community-led solar installations and retrofits, empowering residents to control energy use and costs. By financing these projects, they help lower the carbon footprint and energy costs for LMI communities through a grassroots approach ensuring direct benefits.

Community-led projects foster local leadership and decision-making power. They prioritize resident needs over outside interests and build trust among community residents, CDFIs, and their nonprofit partners. 

Grassroots solutions also are often more sustainable long-term than efforts led by those who may not live in the communities their organizations serves.

CDFIs finance sustainable housing, climate-smart infrastructure, and projects enhancing the ability of LMI people to withstand and recover from climate shocks. This integration of resilience into lending practices helps create not just long-term economic stability, but also environmental sustainability in LMI communities adapting to climate change.

Resilient infrastructure prevents costly damage from extreme weather. Green housing lowers utility bills and improves health outcomes. Continuous economic development helps ensure community stability.

Each dollar injected into a CDFI catalyzes eight dollars in private-sector investment. That means $8 billion of GGRF capital invested in CDFIs could attract $64 billion additional dollars. 

That increased investment is essential for scaling clean energy projects in underserved communities to slow the consequences of climate change in them. But it also has a transformative effect on their local economies, potentially helping their residents build viable generational wealth. 

CDFIs expertise in place-based investing allows them to effectively address localized needs of low-wealth communities and advance environmental justice. That makes them ideal partners for philanthropic, public, and private investors in climate finance initiatives.

The Biden-Harris Administration's Justice40 initiative aims to ensure that 40% of the overall benefits of certain federal investments flow to underserved communities. CDFIs align with this initiative by prioritizing investments in LMI areas, thus addressing environmental injustice and promoting equitable access to clean energy.

Targeting federal investments also remedies disproportionate pollution burdens in marginalized communities. It advances energy democracy and energy affordability. Environmental justice is critical for an equitable energy transition.

Through federal financing, technical assistance, and catalyzing private-sector investment, CDFIs mitigate the effects of climate change. They can further the clean energy transition while fostering economic revitalization in low-wealth communities, closing wealth gaps and making America better for all its people. 

Since this is the fundamental purpose of CDFIs, other institutions committed to fighting climate change in marginalized communities should make them key partners in their efforts.

Dahna M. Chandler is a doctoral researcher at the University of Southern California, investigating the historical role of narratives in shaping modern racialized discrimination within the U.S. finance industry. An award-winning finance journalist with a master’s in corporate communications from Georgetown University, she partners with opportunity finance sector organizations as a social impact communications consultant. Drawing on lived experience that aligns with your organization's core constituents, she helps you amplify your mission through strategic, culturally competent storytelling that transforms narratives and drives social change. Contact her to explore how her expertise can help you elevate your organization’s impact communications.

(c) 2024. Dahna M. Chandler for UpThink Communications, a division of Thrive Media Collaborative, Inc. All rights reserved. This case story may not be reproduced or reposted in whole or in part without express written permission of the author.