A National Climate Bank can catalyze investment in clean energy solutions that lower energy costs for all Americans, as part of comprehensive and socially-just climate policy.

Green banks use financial tools to address barriers that prevent private capital providers from fully investing in the target market opportunities. They seek to expand markets and create new opportunities for private investment.

If private investors see an investment as risky (perhaps because it is based on an unfamiliar technology, or because it serves a customer base seen as a credit risk) they may be unwilling to offer capital at rates that are feasible for a project to move forward. Green banks can offer credit enhancements, such as loan loss reserves or loan guarantees, that help de-risk investments for private investors.

Small and geographically dispersed projects like residential or small business energy efficiency are often not cost-effective for private investors to underwrite. Green banks can bundle together and projects that are not cost-effective to underwrite on their own. Pooling these loans diversifies risk and achieves scale, making them far more attractive to lenders.

Transactions that have never been done before are more labor-intensive than typical standardized transactions. Green Banks can put in the technical legwork to develop frameworks for new types of transactions. As the new transaction types become more common, processes become more standardized and friction is reduced.

Ultimately, the use of these financial tools enables much greater overall investment than would have otherwise taken place. A green bank's investment impact can be many times that of its initial capitalization funding.