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Understanding Local Green Banks: Montgomery County Green Bank

April 11, 2023 Better future ahead sign

Within the past two decades, a new type of value-based banking has emerged: green banking. While this form of banking has a wide array of goals, at the core of the movement is a dedication to financing green solutions meant to mitigate the effects of climate change. Primarily carried out by institutions that have come to be broadly known as green banks, these institutions provide a host of services, from providing financing for clean energy projects to climate resilience investing.

Recently, I had the opportunity to interview Chief Investment Officer Stephen Morel of Montgomery County Green Bank (MCGB). MCGB is part of a larger movement to implement local green banks across the US. This is evidenced by the emergence of city-level green banks in places like Washington, DC and Philadelphia, PA. While city green banks are currently more common than county-level green banks, Morel says the MCGB team is regularly contacted by counties across the US about how to replicate the kind of structure they have managed to create. Morel predicts some county-level green banks will emerge in the coming years.

Counties are right to look to the Montgomery County Green Bank for advice and inspiration on how to create their own green banks. The MCGB has had a major impact in its eight years of operations. The MCGB has done over $30 million in deals in the last year alone, mitigating 5300 metric tonnes of carbon annually, supporting the creation of four megawatts of solar energy, and leveraging almost $2 from the private sector for every $1 of public funding used. The MCGB’s dedication to supporting low-income communities is essential to note. The majority of the 1500 households supported by the bank have been low or moderate income, as the MCGB focuses its efforts in equity emphasis communities. Equity emphasis areas are broadly defined by Morel as “disadvantaged communities,” and these areas will be further supported by policies implemented as a result of the Inflation Reduction Act (IRA). In addition, Morel notes the bank’s “loss rates are a lot lower than traditional banks… because we spend so much time structuring deals and educating the marketplace.”

As counties look to the MCGB for inspiration, North Carolina’s largest counties should be no exception. Counties such as Wake, Mecklenburg, and Durham could all benefit from creating their own green banks. Morel’s advice to counties considering such a move is to assess the marketplace first by asking, “Do [we] have a market that is large enough to support this type of activity?” After the marketplace has been assessed, Morel offers three key areas to focus on when founding a green bank: funding, entity type, and priorities. Morel recommends understanding what sources of funding the bank will have and how that will translate into the types of instruments the institution will be able to provide. Green banks commonly leverage public funds to accumulate private funds, and Morel outlines the process as follows, “You’re kind of working backwards if you come up with an overall cost… you can figure out what kind of leverage you’ll get from private sector, and then bring in a fraction of that for just the public money.” In addition to funding, institutions should determine whether they will be formed as an independent entity or as a part of the local government. MCGB is an independent 501(c)(3), meaning they choose to work on the county’s objectives, but they are not directly a part of the county government. Finally, Morel advocates for creating priorities, saying “Take a look at the priorities of the county or counties together, and then try and get an economic analysis of what it would cost to actually achieve those.” This involves conducting a needs assessment in order to figure out what the county needs in terms of green financing and where the largest opportunities are. Deciding priorities of the bank is important to ensure that the bank will be capable of meeting its goals.

In the past, some smaller jurisdictions have looked to create green banks but have been halted by their size and corresponding lack of a market. Morel notes, “There is a threshold people have to get to before they can justify that kind of activity.” For cases such as these, Morel believes state-level green banks are a promising solution. However, he notes an important outlier to this rule: for states in which a state-level green bank is not politically feasible, smaller green banks can persevere in order to promote the best interests of communities.

County and state-level green banks have different advantages. Morel notes a primary advantage of county-level green banks, saying “the real benefit of being a county-level institution is you can be nimble with the county’s priorities and adjust to what the county is interested in.” Montgomery County has taken advantage of this benefit by setting up its own climate action plan (CAP). The CAP is designed to hit specific areas the county wants to target to promote GHG reductions. The county is able to prioritize its own interests that may not align with those of the state or other nearby counties. Furthermore, Morel states that, “every marketplace has its own flavor of financing that works… it is important to have that kind of ability to be flexible in the form of financing offerings that you have out there to meet whatever demand there is.” This can be done by state green banks, but local institutions are at an advantage in terms of providing specialized financing offerings to meet the demand of local markets.

While local green banks benefit from specialization, their primary struggle lies in developing a marketplace. Morel frames the business operations of the MCGB around two areas: finance and education. While a large portion of the work they do involves leveraging capital from the private and public sectors, the bank must also focus heavily on educating the marketplace. Morel argues this is primarily due to what he calls “the stages of denial” of green banking: most people don’t know enough about green banking to choose to get involved. The MCGB educates their marketplace on the following three points: the economic value that can be gained from green investments, financial resources designed to help individuals involved with green investing, and how green banks can support individuals and organizations. This education occurs at local meetings, through webinars, and through the distribution of information via the MCGB website. Morel acknowledges the need for in-person communication stating, “Ultimately, we end up making sure that we’re doing hundreds of these events within the course of a year because it really takes being in front of people.” Through these meetings and MCGB’s role as an independent advisor to clients, the MCGB is able to foster trust within the marketplace.

As the local green bank movement gains momentum, it is important to look to those who have had success in this sector. Montgomery County Green Bank is one of many green banks across the country that has been successful in educating and promoting green investments on a local level. These banks’ success is supported by their communication and collaboration through the American Green Bank Consortium run by the Coalition for Green Capital. Weekly calls keep green bank officials up to date on the best practices in their field. Morel appreciates this network, expressing, “All the green banks do stick together.”

For all current and future green banks there is a shining light on the already bright horizon: the $27 billion dollar Greenhouse Gas Reduction Fund (GGRF). Otherwise known as $27 billion dedicated to green bank funding. $7 billion of this fund will be dedicated to state and local jurisdictions. Montgomery County Green Bank is expecting to receive financial support from this fund, and their team is ready to put the money to good use. Morel states, “We have a capacity, a high capacity to accept as much money as they’re willing to provide.” That money will go directly to the projects the MCGB works on. For counties and cities looking to capitalize on the GGRF funding created by the Inflation Reduction Act, now is the time to develop green banks.

About the Author

This article was written by Stella Ervin, an honors undergraduate at UNC-Chapel Hill majoring in Economics with a minor in Sustainability. She has a passion for green finance and sustainable textile use and is an IE Cleantech Corner Initiative intern involved with the production of the UNC Cleantech Summit. Connect with her on LinkedIn.