In the last few years, universities have emerged as a hotbed of investment in clean energy and efficiency (“cleantech”).

An increasingly popular and innovative tactic for making these investments is the green revolving loan fund (GRF). A GRF issues loans to finance cleantech and sustainability projects that can generate monetary savings. The returns from these projects flow back into the fund (“revolve”) and are re-invested in future projects. GRFs are often managed by a committee of community members who review loan applications and oversee fund operations.

The number of universities with a GRF has quadrupled since 2008, growing to at least 47 by the end of 2011. The Sustainable Endowments Institute (SEI) along with numerous partner organizations including AASHE, recently launched the Billion Dollar Green Challenge, an ambitious campaign that encourages and facilitates university investment in GRFs, with the ultimate goal of directing $1 billion of capital into these funds nation-wide. With an estimated $65 million already committed to GRFs as part of the Challenge, continued growth is expected.

On the surface, this growth should not be surprising, as the case for making cleantech investments on campus is well established. Schools regularly report annual return-on-investment (ROI) in excess of 30% for cleantech projects (for additional statistics see the publication, Greening the Bottom Line). These projects usually pay for themselves in less than five years, and often much faster, while also reducing carbon emissions among other environmental benefits.

However, the choice to use a revolving loan mechanism to make these investments is not always so obvious. Any investment made by a GRF could also be made by spending directly out of the operating budget, capital improvement budget, or endowment. Energy savings would then be absorbed into the operating budget with no strings attached. So why use a GRF?

In my experience, there are several key factors that make GRFs the best choice for universities looking to make cleantech investments.

• The “sizzle” factor. A GRF is a unified, purposeful investment vehicle that is easy to market and generates a more positive public image than traditional investments. It demonstrates concrete commitment to sustainability in a way that one-time investments cannot.

• Turn expense into investment. Despite the massive cost-saving potential of cleantech investments, many colleges and universities are stuck in the rut of thinking about them as an expense only. By definition, the “revolving” mechanism brings savings into the limelight and explicitly directs them into future investments. When presenting this concept to administrators, I have shown the following graph. The first bar is annual ROI for the stock market (S&P 500). The second bar is annual ROI for university GRFs (reported to SEI).

• Leverage savings into opportunity. GRFs are a great way for schools to capitalize on the savings from cleantech projects to promote sustainability in general. For example, the Dartmouth Green Revolving Fund (full disclosure: I am a co-founder) directs 10% of the savings from renewable energy and energy efficiency projects into a Green Community Fund. Students, staff, and faculty can then apply for money from this fund for projects that promote sustainability on campus, whether or not they have financial paybacks.

• Bring the ivory tower down to the community. A GRF can engage the community by bringing diverse stakeholders to the table to make decisions about investments and chart a path toward sustainability. This happens via interactions on the management board and through the participatory process of writing proposals for funding. At a more basic level, GRFs are often started by students. Of the 47 funds surveyed by SEI, 17 were student-driven.

• Predictability and staying power. A GRF charter is usually written with specific requirements for projects to ensure fiscal discipline and environmental responsibility. Unlike investments made on a case-by-case basis, a GRF helps guarantee that money will be spent according to the criteria the founders intended.

• Check the box. Many rating systems, surveys and reporting programs look specifically for the existence of a GRF when reviewing organizations.

• Performance tracking. You can’t manage what you don’t measure. A GRF allows a school to draw a figurative box around a body of money, invest it in sustainability projects on a recurring basis, and then track the financial and environmental performance of those projects. This model lends itself to metrics like payback period, return-on-investment, carbon mitigation per dollar, and so on. For example, check out the “By the numbers” section of Harvard’s fund website. Clean, simple, and compelling. Try doing that with a suite of traditional capital allocations!

• Infinite scalability. GRFs can be effective with starting capital of $10 or $10 million. Whether the first investment is one lightbulb or a solar array, the model works. Many schools have started their funds off small to demonstrate effectiveness, then scaled them up once the administrative machinery is up and running.

I am convinced that Green Revolving Funds are the wave of the future for cleantech investment on campus. They have a notable financial, environmental, and educational upside and negligible downside in most cases. With initiatives like The Billion Dollar Green Challenge and student entrepreneurs leading the way, it will be exciting to see what the next few years have in store.

You can contact the author at Joe.Indvik@gmail.com.

PITTSBURGH, PA (Oct. 11, 2011)– To “Save Energy, Grow Money,” the Billion Dollar Green Challenge invites colleges, universities and other nonprofits to invest a total of one billion dollars in self-managed green revolving funds that finance energy efficiency upgrades.

The Challenge is inspired by the exceptional performance of existing green revolving funds, which have a median annual return on investment of 32%, as documented by Greening The Bottom Line, a report published by the Sustainable Endowments Institute.

A bright spot in a rocky economy, these profitable investments are helping create green jobs in campus communities, while lowering operating costs on college and university campuses.

“We’re transforming energy efficiency upgrades from perceived expenses to high-return investment opportunities,” said Mark Orlowski, executive director of the Sustainable Endowments Institute, which is coordinating The Challenge along with 15 partners. (See complete list included below.)

The Billion Dollar Green Challenge launches publicly on October 11 at the Association for the Advancement of Sustainability in Higher Education conference in Pittsburgh. With more than 2,500 participants, the conference is the largest gathering to date on higher education sustainability.

“The Billion Dollar Green Challenge asks our higher education systems to invest in green revolving funds to support the campus sustainability movement. AASHE supports The Challenge in that these funds will help institutions become more sustainable and will help the higher education community understand the commitment they are making to a just and sustainable future” said Paul Rowland, Executive Director, of the Association for the Advancement of Sustainability in Higher Education.

In advance of the launch, 32 institutions have already joined The Challenge’s Founding Circle by committing to invest a cumulative total of more than $65 million in green revolving funds. In addition to Harvard, Stanford and ASU, other Founding Circle institutions include Caltech, Dartmouth, George Washington, Middlebury, the University of British Columbia, and Weber State University. (See complete list in the appendix.)

Several Founding Circle schools have already established funds and are enthusiastic about the benefits. Harvard’s Office for Sustainability Director Heather Henriksen said, “The Green Loan Fund has generated high returns on investment, while improving Harvard’s environmental impact and our bottom line.” Endowment investments, operating funds and alumni donations have all been used to establish green revolving funds at institutions across the country.

Guided by a 34-member expert advisory council, The Billion Dollar Green Challenge offers technical assistance, best practices sharing, access to an advanced web-based tool for managing green revolving funds, peer institutions’ project-specific data and invitations to specialized webinars and conferences.

At Stanford, Office of Sustainability Associate Director Fahmida Ahmed said, “Our fund has already financed over 200 small and large efficiency projects on campus, with an average simple payback period of just four years.”

The Billion Dollar Green Challenge has received financial support from the David Rockefeller Fund, HOK, John Merck Fund, Kresge Foundation, Merck Family Fund, Rockefeller Brothers Fund, Roy A. Hunt Foundation, U.S. Environmental Protection Agency’s Green Power Partnership, and the Wallace Global Fund.

Fifteen partner organizations have played a pivotal role in developing and launching The Challenge: American College and University Presidents’ Climate Commitment (ACUPCC), Association for the Advancement of Sustainability in Higher Education (AASHE), Clean Air-Cool Planet, Clinton Climate Initiative, Earth Day Network, National Wildlife Federation Campus Ecology, Net Impact National Association of Environmental Law Societies, New England Board of Higher Education, Rocky Mountain Institute, Second Nature, United Negro College Fund (UNCF) Building Green Initiative, U.S. Environmental Protection Agency’s Green Power Partnership, and Vermont Energy Investment Corporation.

Please visit www.GreenBillion.org for more information.

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About the Sustainable Endowments Institute
The Sustainable Endowments Institute was founded in 2005 as a special project of Rockefeller Philanthropy Advisors. The Cambridge-based nonprofit organization has pioneered research and education to advance sustainability in campus operations and endowment practices.

APPENDIX:
Billion Dollar Green Challenge – Founding Circle

Agnes Scott College
Arizona State University
Bellevue College
Berkshire School
Bethany College
Boston University
Buffalo Niagara Medical Campus
Burlington College
California Institute of Technology
Daemen College
Dartmouth College
Denison University
Edgewood College
George Washington University
Georgia Institute of Technology
Green Mountain College
Hampshire College
Harvard University
Mars Hill College
Middlebury College
Northland College
Oregon State University
Stanford University
Thompson Rivers University
Unity College
University of Arizona
University of British Columbia
University of Minnesota
University of New Hampshire
University of Oregon
Weber State University
Western Michigan University