Financing Sustainability Projects on Campus

Revolving Loan Funds

A Revolving Loan Fund (RLF) provides capital for projects that create some level of return or cost savings, such as energy efficiency or renewable power generation projects. Some portion of that return or savings is used to repay the fund until the full project cost has been paid off. Repayment can include an interest rate, or be interest-free. As the fund is replenished it can finance more projects that meet the RLF’s investment criteria.

RLFs have become increasingly popular at colleges and universities in the United States, with over two dozen currently active across the country. These funds often are referred to as green revolving funds, and target sustainability projects beyond energy efficiency. Many schools claim that their RLFs equal or exceed endowment investment returns. Initial capital for the RLF can come from a number of sources. The most common source of seed capital is administrative funds, wherein capital is drawn from administrative and departmental budgets. Student fees or student government funds, pre-existing efficiency savings, and donations also have been used to seed RLFs. Funds can be established in any size (of the two-dozen polled in late 2010, the median fund size was $170,000).

The most common project type targets resource efficiency, aiming to reduce consumption of energy, water, paper, etc. These projects are typically designed and managed by the institution’s facilities staff. Projects also aim to reduce greenhouse gas emissions.

Harvard University is one of many institutions to successfully implement a large-scale RLF. Its $12 million RLF finances projects that reduce the environmental impact of the University and have a payback period of between five to ten years. To date, Harvard has developed 153 projects, loaned $11.5 million, and realized $4 million in savings with a median ROI of 27%.

Benefits

• Evergreen source of capital for projects
• Fund can grow over time
• University has complete control over what to fund
• Can be used to foster competition between departments around resource consumption

Challenges

• Relatively new concept for schools
• Can be relatively expensive to set up and manage
• Schools often lack in-house expertise to manage
• Underwriting process can be labor intensive

Back to Financing main page