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Community Development Financial Institutions (CDFIs) are in a unique position to help small businesses make climate-friendly investments. They can play a vital role in identifying and helping finance energy, water, and other cost-saving conservation projects that require no up-front outlays from businesses, but instead share in the savings.

Consider the example of “Energy Savings Performance Contracts” (ESPCs). Run under the auspices of the U.S. Department of Energy (DOE), private partners work with federal agencies to help identify and fund investments that reduce energy consumption. Contracts are structured so that private lenders share in the savings from lowering government energy and water bills. Federal agencies value the program since there are no up-front costs and minimal budget impacts. From their launch in 1998 through 2021 over 900 federal sites have implemented ESPCs which typically result in 20-30% energy savings. According to the DOE, these climate-friendly investments have contributed nearly $17 billion in cumulative energy and water cost savings and avoided over 200 million metric tons of greenhouse gas emissions. 1

CDFIs are well-positioned to help small businesses negotiate similar contracts through the Small Business Administration’s loan programs (504 or 7(a)). These climate friendly investments should appeal to small business owners, since they boost both the bottom line and green credentials, and there are no up-front costs.

Consider restaurants for example. A 2019 study by the Restaurant Resource Group found average profit margins for full-service restaurants barely over 6% and only slightly higher for fast food. Lending money based on shared savings could appeal to restaurant owners that see an opportunity for “free” climate-friendly investments that lower major cost categories such as food, labor, and utilities.

Improving energy efficiency, reducing food waste, and streamlining operations can help lower food and labor costs, and utility bills. Energy-efficient upgrades, such as replacing old windows and doors, upgrading insulation, and installing energy-efficient lighting can help businesses lower energy costs while reducing their carbon footprint. Switching to LED lighting for example improves lighting quality and uses up to 80% less energy, lowering energy bills.

Investments in energy-efficient cooking, heating, cooling, and refrigeration equipment can save up to 30% on energy consumption. Automated ordering and cooking systems can streamline restaurant operations and save labor costs by trimming the time and labor required to process orders and prepare food. Automation also boosts labor productivity by improving accuracy, which reduces errors and food waste. Investments in energy-efficient upgrades and equipment that improve kitchen workflow and reduce downtime due to maintenance and repairs have a triple benefit. They enable restaurants to lower labor costs, lower utility bills, and reduce their carbon footprint. Other profitable climate-friendly investments include water conservation measures such as low flow faucets, dishwashers, and toilets that lower water bills. Green remodeling projects that qualify a restaurant as LEED-certified, can also help conserve water, cut energy consumption, and minimize environmental impacts.

Lowering food bills can be accomplished through a variety of investments. These include staff training, repurposing leftovers, composting, inventory management, food forecasting software, and other initiatives. Training staff on proper food handling and storage and keeping close track of inventory levels and rotating stock to ensure older ingredients are used first also helps streamline operations and reduce food waste.

Implementing waste reduction programs such as recycling and composting also helps restaurants reduce time and labor required to manage and dispose of waste. Waste management investments can reduce food waste and allow employees to spend less time cleaning and more time on core tasks such as food preparation and customer service. For example, recycling programs and equipment to compost organic waste can reduce waste sent to landfills. Composting food waste not only helps reduce waste disposal fees but produces a valuable source of organic fertilizer which can be sold for gardens and landscaping. Improving energy efficiency, reducing food waste, and streamlining operations can lower food costs, labor costs, and utility bills. Climate-friendly investments not only cut costs, but may also increase revenues from climate conscious customers, boosting the bottom line.

CDFIs have the potential to play a critical role in supporting small businesses to make climate-friendly investments that boost bottom lines, reduce greenhouse gas emissions, and create a more sustainable economy. An important first step is for CDFIs to weigh the costs and benefits of alternative investment options and focus on those that offer the greatest potential savings and environmental impacts from which to ensure a positive return on investment from shared cost savings. Next, CDFIs can offer financing solutions, technical assistance, and other valuable resources to promote these climate-friendly investments. For example, by helping small businesses forge partnerships with climate-conscious investors, government agencies, industry associations, community organizations, and others. Finally, CDFIs should track, and measure cost savings and environmental impacts of the financing and technical assistance they offer their small business customers. Success in identifying and funding profitable climate-friendly investments can encourage other small businesses to pursue similar initiatives. With careful due diligence and helpful data analytics from companies like, CDFIs can help assure both the health of their customers and of the planet.


1 Steps used to structure ESPCs at Military Installations:
1. Identify energy conservation measures: at the installation, such as upgrading lighting systems, improving HVAC systems, or installing renewable energy systems.
2. Develop an energy savings plan: The private sector partner conducts an energy audit and develops an energy savings plan that outlines the costs, savings, and expected return on investment for each energy conservation measure.
3. Implement energy conservation measures: The private sector partner installs the energy conservation measures using their own capital, and is responsible for the design, construction, and installation of the energy systems.
4. Monitor energy usage: The private sector partner monitors the energy usage of the installation to ensure that the energy conservation measures are performing as expected, and to identify any additional opportunities for savings.
5. Share in the energy savings: The private sector partner is paid from the energy savings generated by the energy conservation measures over a period of typically 10-20 years.
Francois Melese, Ph.D.

Author Francois Melese, Ph.D.

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