A green revolving fund has been defined as “an internal capital pool that is dedicated to funding sustainability projects that generate cost savings. A portion of those savings is then used to replenish the fund (i.e., the funds are revolved), allowing for reinvestment in future projects of similar value” (U.S. Department of Energy, n.d.). This establishes an ongoing funding vehicle that helps drive increased sustainability over time while generating cost savings and ensuring capital is available for important projects. Typically, the interest rates are at or below market rates. The funds are usually capitalized by public sources and managed in a manner that creates a repeated cycle of loans and repayments.
Traditionally, green revolving funds in North America and Europe provided loans for sustainable energy and sustainable urban development projects. However, in the United States, several states have used state revolving funds to finance adaptation-related projects, including green stormwater and wastewater infrastructure and drinking water capacity projects.
In addition, revolving funds have been used to support small projects in developing countries, including for adaptation. Repayment to the fund may not be through cost savings, but the fund enables community members to access funds at low interest rates with long repayment periods. Such funds are often established with seed funding from development partners.
Current or potential adaptation-relevant sector applications:
- ecological services and management – forest management (including afforestation and reforestation); wetlands; ecosystem and biodiversity protection, conservation, and enhancement;
- water supply (infrastructure) – water management;
- coastal and riverine protection and management – coastal defences or flood protection barriers; river flood protection measures;
- disaster risk reduction – early warning and observation systems;
- other built environment and infrastructure – urban development; and
- social infrastructure – education; health facilities.
Additional insights:
- This is a mature instrument. Green revolving funds have been used since the 1990s by educational institutions in the United States to fund climate mitigation projects related to energy efficiency and renewable energy.
Considerations for using Green Revolving Funds:
- Sufficient capital is required to seed the fund.
- Green revolving funds seek projects that will pay back/reseed the fund regularly, which may be an impediment to funding long-term projects.
Adapted from the following sources:
Council of Development Finance Agencies. (n.d.). Revolving loan funds and development finance. https://www.cdfa.net/cdfa/cdfaweb.nsf/pages/revolving-loan-funds.html
Housing 2030. (n.d.) Revolving funds and auctioning – Austria, Czechia, France, Poland, Slovakia and Slovenia. https://www.housing2030.org/project/revolving-funds-and-auctioning/
Urban Low Emission Development Strategies. (2021). Innovative financing for low emissions development: Revolving funds, intracting and community funding. What do they mean??https://urban-leds.org/wp-content/uploads/2021/11/Urban-LEDS-factsheet-_Innovative-Financing.pdf
U.S. Department of Energy. (n.d.). Green revolving funds. https://betterbuildingssolutioncenter.energy.gov/toolkits/green-revolving-funds