The Billion Dollar Green Challenge (The Challenge) encourages colleges, universities, and other nonprofit institutions to invest a combined total of one billion dollars in self‐managed green revolving funds that finance energy efficiency improvements.
Green revolving funds invest in energy efficiency projects to reduce energy consumption and reinvest the money saved in future projects. They are called “revolving funds” because the funds loan money to specific projects, which then repay the loan through an internal account transfer from savings achieved in the institution’s utilities budget. Participating institutions will achieve reductions in operating expenses and greenhouse gas emissions, while creating regenerating funds for future projects.
Having a green revolving fund ensures that an institution will always have a source of financing for sustainability projects, thereby building in a system for on-going savings. For example, if money allocated to further sustainability efforts is spent on a one-time project, there are no additional benefits beyond that one improvement. However, those same funds could instead be used to create a GRF, which then lends the money to the project. This process not only accomplishes the original goal, but also captures the continued fiscal savings and makes them available to lend to new efficiency projects.
Institutions can benefit from establishing green revolving funds and joining The Challenge in many ways:
Benefits of implementing a green revolving fund
- Reduction in carbon emissions and resource consumption
- Financial savings
- Growing financial resources for future project investment
- Educational opportunities for research and teaching
- Fostering a culture of sustainability and resource efficiency
Benefits of joining The Billion Dollar Green Challenge
- Green Revolving Investment Tracking System (GRITS)—an advanced web-based tool for managing an institution’s green revolving fund
- Access to peer institutions’ project-specific data to use for benchmarking and analysis
- Connections to peer support and expertise at schools with existing green revolving funds
- Resources on green revolving fund best practices
- Technical assistance (up to five hours of free consulting during the fund formation process)
- Invitation to conferences and meetings related to green revolving fund development
- Recognition of leadership and positive media attention
Any college, university or other nonprofit institution may join The Billion Dollar Green Challenge. The Challenge provides numerous benefits including helping streamline the formation and ongoing operation of an institution’s green revolving fund. In order to join, an institution must commit to the following:
1) Enlarge or maintain an operating green revolving fund so that the fund size will either continue to surpass, or will surpass within four years, the smaller of:
- One percent of the institution’s endowment value, OR
- One million dollars
As part of this plan, at least 50 percent of money saved through a project investment by the revolving fund will return to the fund to be re-invested in future projects—at least until the full cost of the project has been repaid. To qualify, an existing fund must also be operational and have mechanisms in place to identify projects and make investments.
2) Initiate the process of creating a green revolving fund that will meet the requirements listed above. The progress will be tracked according to four quarterly benchmarks within the indicated time periods—starting from the date an institution joins The Challenge:
- Within three months: Form a multi-stakeholder working group, or assign an existing group, (which may include faculty, students, staff, administrators, trustees) to lead the process of establishing the fund guidelines and operating procedures.
- Within six months: Complete an energy audit for approximately 10 percent or more of the building square footage on campus. Audits may be conducted by consultants, university staff, or students with faculty or staff support. An audit completed within the past five years can fulfill this requirement.
- Within nine months: Formalize a guiding document to outline the operational procedures for the fund including the process for reviewing project proposals, making investments and tracking savings.
- Within twelve months: Approve fund investment in at least one project.
Once an institution establishes a green revolving fund or for institutions with already established funds
Institutions that join The Challenge with an existing green revolving fund agree to:
- Engage with other institutions that make reasonable requests for advice or assistance (staff time permitting).
- Compile an annual update on the activities of the fund (including its current size, project loans approved, and other relevant information).
In order to fully participate in The Challenge and gain access to the Green Revolving Investment Tracking System (GRITS), an institution will pay an annual 1/20th of one percent administrative fee (not to exceed $2,500), based on the committed size of its green revolving fund. For example, a $1,000,000 green revolving fund would pay a $500 administrative fee while a $3,000,000 fund would pay a $1,500 administrative fee.
An institution may opt to withdraw from The Challenge at any time. If an institution does not meet a benchmark deadline without asking for an extension, it has three months to become current or may be automatically withdrawn from The Challenge.
Download the Info Packet with FAQ, Policies of Joining, and Agreement
Green revolving funds (GRFs) invest money in projects that improve efficiency and decrease resource use, thereby reducing both operating expenses and greenhouse gas emissions. The cost savings that result from efficiency projects are used to replenish the GRF, allowing it to return to its original size, or to grow. After the initial project costs have been returned to the fund, additional savings accrue to school or department operating budgets. The Billion Dollar Green Challenge defines GRFs using two criteria:
- The fund must finance measures to reduce resource use (energy, water, etc.) or to reduce carbon emissions (for example, by developing renewable power).
- The fund must revolve. That is, savings attributed to reduced operating costs from funded projects must be used to repay the up‐front project costs to the GRF.
There are a variety of ways that schools can procure seed funding to establish a GRF. Funding sources may be used alone, in conjunction with other sources, or in a “matching” context to help solicit donations and leverage other sources of funding.
- Administrative budget: Allocations from central administrative or departmental budgets (e.g. Facilities, Dining or, in some cases, the Sustainability Office) are the most popular method of securing seed money. This is the method that has been used to begin some of the largest funds. Some schools have also allowed employees to make contributions to GRFs through payroll deductions.
- Student body: Student green fees or allocations from student governments can provide seed funding. Students may then be involved in the formation and operation of the GRF,or may simply be the initiators of a campaign to raise capital for the fund. Funds that secure seed money from student sources rarely exceed $100,000.
- Endowment: An institution may allocate a small portion of its endowment to be invested in efficiency projects. The endowment may also provide a loan to begin a GRF, which can then become independent of the endowment upon repayment of loan principal and interest.
- Utility rebates: For projects that curtail demand utility companies can provide rebates, which then can be leveraged to begin green revolving funds. Since GRFs are able to generate cost savings, they can trigger further rebates or partnerships with a utility.
- Donations: Individuals, alumni, or foundations can donate seed money to begin GRFs. Such donations can be solicited through applications for grants and charitable donations, or through alumni gift campaigns.
As they generate utility savings from efficiency projects, GRFs provide reliable returns on investment and short repayment periods. Established funds have reported ROIs ranging from 29 percent (Iowa State University) to more than 47 percent (Western Michigan University), with a median annual ROI of 32 percent. This suggests that GRFs can not only significantly outperform average endowment investment returns, but continue to identify and finance high-yield projects over the long term.
A diverse set of institutions are creating GRFs, not just wealthy schools. Over 40 percent of funds are $100,000 or less; the smallest fund ($5,000) is at the College of Wooster. Approximately a third of institutions with GRFs have endowments below $250 million. The school with the smallest endowment to create a GRF, Lane Community College, has an endowment of $7.6 million.
Colleges and universities of all sizes have created GRFs. Large universities such as Arizona State, Harvard and Stanford have established funds, and so have small four‐year liberal arts institutions such as Allegheny College (Pennsylvania) and Kalamazoo College (Michigan).
Most schools allow their funds to finance any project that will increase efficiency and reduce resource use. These projects have ranged from lighting and water efficiency retrofits to installing composting equipment and converting tractors to run on biofuel. For more information on projects that have been financed by GRFs, including their costs and payback periods. See Greening the Bottom Line ‐ Appendix C (page 43). Some funds, in addition to providing loans, also give grants to projects that will not return savings. These grants serve to finance important sustainability projects and to engage the campus community with sustainability issues. For more information on these types of funds, see the next question.
There are three basic types of green revolving funds:
- Efficiency funds provide capital to energy and/or water efficiency measures. Their goals are to reduce resources and save money. Project ideas are initiated and managed by staff from Facilities, Energy Management and/or Finance Departments. Efficiency funds tend to require a relatively short payback period and are infrequently used to engage the broader campus community.
- Innovation and engagement funds explicitly seek community engagement in project proposals. The funded projects may have short paybacks, long paybacks, or no payback requirements. Innovation funds often provide loans that require repayment for projects yielding operational savings, and then use these returns to subsidize grants for projects without cost savings. Innovation funds are generally administered by a committee and often include significant student participation and/or oversight.
- Hybrid funds target resource reduction and cost saving, but also consider community engagement and outreach goals. The majority of funds follow this model. They finance efficiency projects in addition to a wider range of initiatives such as renewable energy development, solid waste diversion, and reducing use of materials like paper or synthetic lawn chemicals. Hybrid funds often seek to engage and/or educate the campus community in sustainability efforts. While a broad set of campus stakeholders tend to provide oversight to hybrid funds, responsibility for administrating the fund usually rests with facilities and/or sustainability staff.
Schools reported average project payback periods ranging from 1 year to 10 years, with a median of four years. After loans have been repaid, additional savings are realized in the utilities budget thereby lowering the institution’s overall operating budget. Some schools stipulate that loans must be repaid within a certain amount of time. Among the schools that require a maximum payback period, the median is six years and the shortest maximum payback term is three years.
There are two ways that the schools have reported paying back their loans.
- Loan Model: The project proponents have direct control over their budget and thus can independently repay their loan. This includes cases where departments or schools control their own utility budgets, or cases where GRF funding focuses on one type of easily controlled project, such as paper, rather than on utilities.
- Accounting Model: Repayment is handled through the transfer of funds to the GRF from a centrally managed budget where the savings were generated (e.g., electricity budget).
Though fund administration varies widely from school to school, most institutions have committees that review and approve project proposals.These committees often include administrators, staff, students, and faculty. Two schools (American University and Whitman College) have committees that also include alumni.
Schools have varied models for their GRFs. While the majority of schools do not charge interest for loans, five schools do. Interest rates range from 1 to 2 percent (University of Colorado at Boulder) to 5.5 percent (University of Minnesota – Twin Cities).