Co-written by:
Rokas Beresniovas
Sacha Alaby
The Critical Need for Flexible, Long-Term, and Patient Capital
“The need for flexible, long-term, and patient capital could not be more urgent.” This sentiment resonates across conversations with executives from climate-friendly financing institutions nationwide. Leaders from these organizations consistently highlight the challenges of accessing the right types of capital needed to drive meaningful sustainability-related changes.
Notably, community-based lenders have stressed how the scarcity of flexible capital has been a persistent barrier, while established green banks emphasize the slow mobilization of private capital to address the well-documented financing gap (Chatham House article). These challenges underscore the need for significant adjustments in both policy and practice to create a more effective climate finance ecosystem.
Community-Based Lenders and Flexible Capital
Leaders of community-based lenders take great pride in achieving positive outcomes for their communities despite challenging operational realities. Their financial lifeblood consists of retained earnings, loans from banks striving to meet Community Reinvestment Act requirements, and grants. While these sources have enabled pockets of success, they remain insufficient to drive the large-scale sustainability transformations that communities urgently need.
Programs like the Clean Communities Investment Accelerator (CCIA) are promising steps forward. However, the implementation of such programs often introduces challenges. For example, strict requirements for capital deployment, such as the mandate to deploy 60% of CCIA funding within two years, risk compromising loan quality. Many leaders believe this approach prioritizes speed over strategic impact. They advocate for more pragmatic timelines—spanning five years or more—accompanied by clawback mechanisms to recover unused funds if necessary. This approach would give lenders the flexibility to focus on making thoughtful, impactful investments.
Confusion around project eligibility further compounds these challenges. A manufacturer seeking energy independence, for instance, may encounter roadblocks if their rooftop cannot accommodate sufficient solar panels but they have adjacent land available for installations. Ambiguities like these stall projects and frustrate lenders eager to fund them. Clearer guidance is needed to address such scenarios and provide the certainty lenders require to move forward.
Additionally, the high upfront costs of feasibility studies remain a significant hurdle. Manufacturers are often reluctant to invest substantial sums to determine the viability of energy projects, preferring instead to maintain cash reserves for payroll or other immediate needs. Without flexible capital to cover these preliminary expenses, many promising projects fail to materialize, leaving both lenders and manufacturers at an impasse.
Green Banks and the Role of Private Capital
Green banks have demonstrated their ability to drive transformative sustainability projects, yet their potential remains constrained by the limited availability of private capital. Many green bank leaders aspire to see their institutions become self-sustaining entities capable of delivering triple-bottom-line outcomes without relying on public funds. However, achieving this vision requires a steady flow of patient, long-term capital from non-governmental sources.
Currently, the process of securing private capital often diverts green banks’ attention and resources from their core mission. Time spent courting investors represents a significant opportunity cost, detracting from critical activities such as deal origination, project evaluation, and partnership development. This bottleneck underscores the need for a more supportive ecosystem that enables green banks to focus on what they do best.
Philanthropic organizations, ultra-high-net-worth individuals, and family offices are uniquely positioned to fill this gap. By providing patient capital, these entities can empower green banks to expand their reach and scale their impact. Without this additional support, even the most successful green banks risk falling short of their potential to catalyze sustainability at the scale required.
A Path Forward
The challenges faced by community-based lenders and green banks highlight a broader need for a shift in how capital is structured and deployed within the climate finance ecosystem. Flexible, long-term, and patient funding is not a luxury—it is an imperative. Addressing these barriers requires collaborative action, policy adjustments, and innovative solutions.
Extending deployment timelines, clarifying eligibility criteria, and creating dedicated pools of funding for feasibility studies are practical steps that can unlock stalled projects. At the same time, intensifying efforts to mobilize private capital is essential to ensure green banks have the resources to deliver transformative change.
By addressing these gaps, we can build a more resilient and effective climate finance ecosystem—one capable of meeting the urgent sustainability challenges of our time. Read more.