Green Lending: An Opportunity Too Big to Ignore

Credit unions exist to help members save money in many ways, including the financing of large purchases. Few things are projected to be as big as the growth in the solar and electric vehicle (EV) markets, two of the main consumer financing needs in the green lending space.

According to Statista, annual growth of over 18% in EVs will result in a projected market volume of $161.6 billion by 2028. Solar’s growth has been even more massive with an average annual growth rate of 24% over the last decade and enough capacity to power nearly 30 million homes, according to SEIA. In 2023 alone, 48% of all new electric capacity added to the grid came from solar.

Tax incentives, higher electricity costs and increasing environmental consciousness among consumers, particularly in younger demographics, are some of the key factors driving the surge in demand for green solutions.

The recent COP28 climate summit, which resulted in a first-ever deal to move away from fossil fuels, calls for a global transition to shift energy systems quickly. Credit Human ($3.8 billion, San Antonio, Texas), a low-income designated credit union that entered this space early when it launched its SustainableHome Financing program a year and a half ago, has seen an average volume of $30 million a month or one loan every eight minutes.

It’s time for credit union leaders to collaborate to play a leading role in financing eco-friendly vehicles and household clean energy projects on a new scale, while diversifying their balance sheets through a new asset class.

A Potential Influx of Funding on the Horizon

The $27 billion EPA-administered Greenhouse Gas Reduction Fund includes two different funding programs, both of which credit unions may be able to participate in through a selected nonprofit grantee. The EPA is currently evaluating National Clean Investment Fund (NCIF) and Clean Communities Investment Accelerator Fund (CCIAF) applications and has expressed an interest in grantees with a national presence – something the credit union industry could collectively bring to the table from day one.

Once funds are allocated to nonprofit grantees, they can be used to help expand green lending programs and ensure that solar projects and EVs are accessible to more consumers, especially those in low-income designated communities.

An Emerging Opportunity to Save Consumers Money

Many current and potential credit union members could save money by reducing their monthly energy costs, with those of modest means being impacted most. While purchasing the latest high-end EV may not be on the minds of all consumers, energy-efficient windows, solar upfits, heat pumps and used EVs (including lower-cost plugin hybrids) can have a big impact on a family’s monthly budget and the right lending solutions can guarantee a net savings, including financing costs.

This is a specialized space, however, and cooperation within the industry can help us build the type of infrastructure necessary to meet more members’ needs while managing risk and diversifying our loan portfolios. Simply financing EVs through an existing auto loan program or helping homeowners who qualify for traditional home equity options is a start, but it leaves out many of the consumers of modest means credit unions were established to serve. In the residential solar space, it also leaves members to their own devices to navigate the complexities of choosing a reputable, trustworthy company and local installer and finding the best financing option, which without proactive communication and network involvement, is unlikely to be their local credit union.

Through collaboration, there is an opportunity to expand green lending to those families who could benefit most, including those who have not built up enough equity in their homes or don’t qualify for traditional financing. Plus, innovations in this emerging asset class can reduce paperwork and provide a much more efficient lending process that benefits both members and credit unions.

Regardless of your thoughts on the causes of climate change, the timeline for meeting these growing needs and deploying any potential grant funding, which may be used to create a national loan guarantee program, educate consumers on their options and identify preferred local installers amongst other things, will be highly compressed.

A Way to Remain Relevant for the Next Generation

Credit unions must find new ways to connect with younger consumers. This has been an ongoing challenge for our industry. Providing affordable green lending solutions and consumer-friendly education in this emerging market could be a key path to attracting and engaging the next generation.

It’s also a massive opportunity to diversify both our membership base and our loan portfolio compositions, especially if grant funding enables the creation of a national loan guarantee fund, which would act similarly to the type of guarantees currently provided by SBA loans. By mitigating risk and offering a pathway to energy savings for families of all income levels, credit unions could quickly become national leaders in green lending.

Based on Ecority’s projections, leveraging the industry’s existing branch network and digital channels along with potential grant funding could enable U.S. credit unions to finance 5.3 million projects for a total of $107 billion in just six years.

Achieving long-term sustainable growth in an evolving world requires us to embrace change and consider new solutions. I encourage you to learn more about this opportunity and express your credit union’s interest in participating with a qualified nonprofit grant applicant.

Chuck Purvis is Interim CEO of Ecority, a San Antonio, Texas-based startup nonprofit that has applied for an aggregate of $14.87 billion in grant funding and built a national coalition of credit unions and green banks.