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Community Development

Early Steps toward Green Finance

Financing is, of course, critical to green development.

While there are minor government incentives in place, thus far small and boutique banks have led in creating green lending programs. Small institutions are more likely to offer favorable loan terms for green development, such as reduced interest rates and closing costs, higher loan-to-value ratios, or a longer amortization period for commercial or apartment projects. A few small institutions are even built entirely around green banking, including First Green Bank in Eustis, Fla.

Some large institutions, including Wells Fargo and Bank of America, are starting to finance green development. Wells Fargo has lent more than $2 billion to LEED-certified projects, and Bank of America has pledged $20 billion to support sustainable business over 10 years, with a focus on LEED-certified projects.

So far, energy-efficient mortgages are the most common green finance product. They qualify borrowers for slightly larger loans by adding projected savings on utility costs back to the borrower's income.

Much remains to be done. While some banks have made a strong commitment to green lending, the industry overall has not. Many policies, programs and partnerships will be needed to help green development financing mature into a sound and equitable framework for improving communities.

Read the full article, featured in the Green issue of Partners, for more information.