Community Development Financial Institutions Finding Innovative Ways to Build Climate Resilience

By: Christy Goldfuss and Annie Donovan - May 26, 2016
Source: The White House

Last month marked an historic moment in the global fight against climate change. On Earth Day, Secretary Kerry joined nearly 170 countries in signing the Paris climate agreement. That’s the largest number of countries that have ever signed an international agreement in one day. While the signing of the agreement is a great turning point in our global fight, there’s more work to do. Communities across the globe are having to make difficult decisions daily as they experience the impacts of climate change. Not only are these impacts immediate and relevant to all Americans today, but our most vulnerable populations continue to bear the worst impacts, despite having the least resources to cope with them.

Increasingly extreme weather, wildfires, drought, sea-level rise and other impacts of climate change have exacerbated impacts on vulnerable populations - including children, the elderly, urban and low income communities, pregnant women, outdoor workers, and people with disabilities and pre-existing conditions. For example, in the aftermath of Hurricane Katrina and Superstorm Sandy, studies showed that minority and low-income populations were not only among the worst affected, but also required much more time to recover from the storms due to limited resources, capacity, and other challenges.

As we think about the pressing needs of these vulnerable populations, there are three realities that we should keep in mind: (1) low-income communities cannot be forgotten, (2) we should use every tool in our toolbox, including innovative partnerships to finance resilience, and (3) our work should be community-driven and locally-specific.

There is one group that is uniquely poised where these three realities intersect: Community Development Financial Institutions (CDFIs).

CDFIs come in a diversity of forms.  They can be banks, credit unions, loan funds, or venture capital providers. They support a wide range of projects and activities. Regardless of their form, CDFIs share a common goal of promoting economic revitalization and community development in low-income communities through mission-driven, locally-informed investments. With over 1,000 CDFIs operating nationwide, there are significant opportunities for CDFIs to build climate resilience into ongoing projects and support local efforts to adapt to a changing climate. Many CDFIs are already doing so – in many different ways. Here are just three examples to illustrate that point.

Issues of climate change have long been central to the work of Coastal Enterprises, Inc. (CEI), a CDFI based in Maine, where changes to the temperatures and salinities of the Gulf of Maine waters are disrupting normal ecological systems. Many fisheries have declined to unsustainably low levels, so CEI has focused efforts to address the economic survival of fishing-dependent communities by investing to support a diverse aquaculture that supports alternative income streams for fishing families.

Many CDFIs have long been partners in our national efforts to reduce the carbon pollution that is causing climate change – through energy efficient retrofits and transit oriented development – but there are examples where CDFIs have taken that work one step further to also help communities adapt and prepare for future impacts of climate change.  Following Hurricane Katrina, AMCREF Community Capital, a Community Development Entity based in New Orleans, provided nearly $13 million of New Markets Tax Credit financing to create 150 affordable homes that used environmentally safe materials and reduced homeowner energy costs by 75% (LEED Platinum). The homes were also raised to avoid floods and built to withstand hurricane force winds, rebuilding in a way that will be safer for the long term.

Craft3, a nonprofit CDFI working in Oregon and Washington, partnered with The Freshwater Trust in 2013 to finance a project to restore 30-miles of streamside vegetation in Oregon. Rivers across the country are increasingly too warm for native fish. Historically, to address this problem, cities have built cooling towers or chillers to cool the discharge from wastewater treatment facilities, but The Freshwater Trust’s green infrastructure solution of planting trees to create shade and offset the temperature impacts of the warm, but clean, water being discharged provides long-term environmental benefits not achieved with traditional, more expensive grey infrastructure solutions.

These examples are just the tip of the iceberg. Projects like these serve as models for how CDFIs can help communities become more resilient.  This Administration wants to continue working with the CDFI community to lift up and learn from promising and innovative practices.  One approach that is under consideration by the CDFI Fund is to offer training in resilience financing through its Capacity Building Initiative so that even greater numbers of CDFIs will understand and help address the vulnerabilities that the communities they serve face as a result of climate change. There’s much work ahead but we are hopeful that our continued partnership with CDFIs will provide critical lessons that will help build the business case for resilient investment, and more importantly, help support our nation’s most vulnerable residents.

Annie Donovan is the Director of the Community Development Financial Institutions Fund at the U.S. Department of the Treasury.