(Originally Published on Impact Alpha)
The need for climate action is becoming impossible to ignore as the frequency and severity of natural disasters accelerates. A global goal to keep global temperature rise under 1.5 degrees Celsius (+2.7°F) is already unrealistic given emission trajectories, and even a 2°C (+3.6°F) goal is increasingly unattainable.
Large corporate emitters have not done enough to transform their business models, but local governments are willing to lead the charge to reduce emissions and prepare for the new climate.
Nearly all US States (48 of 50) and more than 400 US cities and counties have developed a climate action or adaptation plan. Yet most have yet to identify much of the funding or financing required to implement their projects. Many are not even funded at all.
Great plans are nothing without implementation. CDP (formerly Carbon Disclosure Project) estimates a gap of more than $86 billion for 2,508 climate-related projects reported in 611 cities across the globe. Cities, counties, and states want to pursue their pollution reduction goals for 2030, 2040, 2050, and beyond. To do so, local governments, project developers, and climate-tech entrepreneurs will have to get creative in the face of new political headwinds.
With the passage of the 2025 Republican spending bill, several climate-action focused federal funding programs and tax benefits are now scheduled for a premature sunset. The Inflation Reduction Act, or IRA, and Infrastructure and Investment Jobs Act, or IIJA, were enacted with bipartisan support and presidential approval, but that hasn’t stopped the Trump administration from trying to stop projects, revoke funding, and cancel programs that deliver measurable benefits for public health, climate stability, and economic savings.
The latest target: the $7 billion Solar for All program. Part of the larger Greenhouse Gas Reduction Fund, Solar for All was considered safe — until Trump Environmental Protection Agency chief Lee Zeldin last week declared it was terminated as part of the Republican spending bill. Recipients have since received termination notices from EPA and had their funding frozen, following similar actions targeting other parts of the GGRF.
Funding recipients around the country have called upon federal judges to block the Trump administration’s attempts to illegally freeze billions of dollars in grants and loans – funding that has been authorized under federal law.
While the legal battles play out, many projects intended to reduce emissions, cut energy costs and build local resiliency are in limbo.
The Clean Energy Innovation Funding Freeze Ticker, developed by Greenline Insights in partnership with C2ES, calculates the real-time economic costs of freezing federal energy and manufacturing funding programs. The current tally: a more than $2 billion hit to the economy overall cost to the economy, and $766 million in lost worker income.
The cuts are hitting states hard, including Republican-led states that were the beneficiaries of much of the investments in factories and other green projects. Texas stands to lose $400 million for solar financing alone.
New funding models needed — and already exist
The US Environmental Protection Agency has documented 30 Case Studies for Climate Change Adaptation, demonstrating action and results across the country in urban and rural, progressive and conservative communities.
Our team at HIP Investor has created an expanded catalog of more than 100 funding or financing vehicles – from grants to private credit to private equity to public-private partnerships – that have already been implemented in at least one city or community. These funding vehicles can be applied to hundreds more localities nationally and globally.
Mayors, councils, and municipal managers can access new types of funding that go beyond muni bonds, local taxes, and developer fees. Blending multiple forms of capital – such as grants, loans, equity and multi-sector partnerships – can help unlock the funding needed to continue and accelerate climate action.
A Climate Spending Map on Grist.org identifies green projects across the country, including more than $300 billion of the funds promised under the IRA and the IIJA that have been approved, awarded, and in many cases disbursed.
Organizations like Energy Funds For All are creating resource libraries for accessing state and national climate fund programs and tracking their ongoing availability. These online and in-person navigators will help residents and project developers understand funding requirements to decide which programs their projects are eligible for.
Federal funding may have slowed, but diversified funding can fill the gap. Just as in investing, a diversified source of funding can ensure longer-term survival and resilience for non-profits, community-based groups and NGOs. Nonprofits should aim to get no more than 20% of their funding from any one group outside of individual charitable giving, advises Inside Charity.
Tapping private equity and credit funds for cities and communities
Private capital has emerged as an increasingly vital component of climate finance strategies. The private sector manages over $210 trillion in assets and represents a massive pool of capital that could be directed toward climate solutions.
The universe of climate-focused private equity and debt funds, pioneered by firms such as TPG and SJF Ventures, has exploded. ImpactAlpha has tracked at least 200 active climate funds in recent coverage.
Funds such as Spring Lane Capital and Generate Capital focus on green infrastructure projects, such as waste management plants and community solar, that are often in line with local projects needs. Funders such as Elemental Impact and Prime Coalition’s Trellis Climate are ready to take on funding for first-of-a-kind climate tech pilot plants. Other funds are place-based, such as North Carolina-focused Blueridge Climate Ventures.
Corporate climate commitments have also created new avenues for private funding. As of November 2024, more than four-fifths, or 82 of 100, of the world’s largest public corporations had set net-zero commitments, with the supermajority using both emissions reductions and carbon offsets to level the gaps between capitalism and pollution. Many corporations also invest directly in climate solutions through corporate venture arms, strategic partnerships, or direct procurement agreements.
Closed-Loop Partners, funded by multinational corporations such as 3M and Amazon, family offices and foundations, has been investing early-stage capital into companies developing breakthrough solutions for the circular economy since 2016. These investments can provide validation as well as market penetration and scaling opportunities that traditional grant funding cannot offer.
With a goal to invest $1 billion to accelerate development and deployment of new climate innovations, Microsoft’s Climate Innovation Fund recently invested into Farmland LP’s third Vital Farmland fund. The $250 million fund pursues a regenerative, sustainable approach to climate-smart farming. Corporations like Microsoft can bring more than just capital to the table, providing guidance on technological innovation to improve operations.
Public-Private Partnerships to serve local communities
The complexity of climate challenges and the aforementioned funding terrain has given rise to savvy public-private partnership, or PPP, models that leverage private capital and expertise while mitigating associated risks with public sector resources.
The Nature Conservancy (TNC) is working in cities like Los Angeles to pioneer new climate solutions for green infrastructure, demonstrating that supporting nature can symbiotically benefit cities. In LA, constructed wetlands, urban forests and increased open space help clean water and mitigate heat, with the co-benefits of flood protection, carbon storage, habitat for wildlife, recreational opportunities and cleaner air.
In 2019 the City of Fremont, Calif., established a public-private partnership with the Fremont-based clean-tech firm Gridscape Solutions and the California Energy Commission to install solar emergency microgrids for Fremont’s fire stations. Under a 10-year power purchase agreement, Gridscape will own, operate and maintain the microgrid system at the three fire stations, resulting in municipal cost savings of $250,000 over 10 years and a reduction of 71 tons of greenhouse gas emissions annually.
Collaboration and knowledge sharing among communities
Connecting to fellow cities and counties can help to identify best practices to put yourself into the best position to access funding. Established networks like the Urban Sustainability Directors Network, or USDN, and C40 Cities Climate Leadership Group share best practices and thought leadership in an effort to disseminate knowledge and accelerate mitigation, resilience and impact. Being part of such a network can help avoid repeating mistakes already learned and provide proven pathways for lower-budget solutions as well as case studies for funding.
USDN and HIP Investor collaborated with a dozen US cities in 2019 to produce a comprehensive catalog of Funding and Financing Vehicles and Case Studies for Climate Action Plans. This “how-to guide” can inform climate action plans today, with already proven funding and financing approaches beyond federal funding and muni bonds – and can help engage private credit, private equity, and corporate partners, as well as grants from communities, family offices and foundations.
Emerging platforms for climate action, such as Vested Futures, represent a new model for piloting climate technologies and innovative solutions.
Real-world strategies for local governments to fund climate action
Navigating this complex funding landscape requires a strategic approach that goes beyond muni bonds, federal grants, and tax codes. City planners, financial managers, council members, and mayors must now think like portfolio managers, carefully blending a mix of funding sources – just as businesses do among equity, preferred equity, private credit debt and lines of credit, as well as joint ventures and partnerships.
HIP Investor has engaged with more than 50 local governments around the country over the past six years, building a directory of over 40 types of funding strategies and pathways — from tariff on-bill financing that enable utilities to recoup energy-saving investments to enhanced-infrastructure districts that use future property tax revenue to pay for improvements. We’ve also compiled more than 100 implementation case studies. HIP typically syncs into a Climate Action Plan strategy with firms such as Rincon Consultants or during the implementation stage as projects are pursuing funding.
Regionally, organizations like the Bay Area Air Quality Management District (BAAQMD) have adapted this catalog of federal, state and local grant and loan programs to align with cities, counties, and municipalities in Northern California.
The US federal climate funding environment will likely remain volatile and complex for the foreseeable future. Local governments that make progress in this environment will explore new sources of funding – from private credit to private equity to partnerships to non-federal grants.
A combination of financing pathways can mobilize private capital and partnerships at a greater scale and accelerate the transition towards a low-carbon economy.
Climate action requires both technical innovation in climate solutions and financial innovation in funding approaches.
The urgency of climate action demands that we become educated on these evolving funding mechanisms quickly and effectively. The landscape may be more dynamic and challenging than in previous years, but it also offers more opportunities for creative, impactful solutions to benefit the health of our communities, nature, and our economic sustainability.
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Nick Gower is an Investment Advisor and Senior VP at HIP Investor
HIP Investor (Human Impact + Profit) works directly with local governments to identify and implement viable funding and financing pathways for climate action and adaptation initiatives, prioritizing measures that reduce greenhouse gases (GHGs), including those that have a positive return on investment (ROI).
HIP Investor is a financial advisor and investment manager focused on Human Impact and Profit potential. Nick Gower is a registered investment advisor representative. All investing is risky; past performance is not indicative of future results.
INVITATION: If you, your city, your county, or your community are interested in collaborating with HIP and our partners to build and implement a successful climate action funding strategy, please contact us.