Senator Tou Xiong, DFL-Maplewood, is helping to lead legislation to start a green bank to finance clean energy and emission reducing projects in Minnesota. Credit: Jaida Grey Eagle | Sahan Journal

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A renewed push at the Capitol aims to create Minnesota’s first “green bank,” which proponents say will maximize public dollars to lower greenhouse gas emissions in disadvantaged communities. 

Green banks are financial institutions designed to speed the transition to a clean energy future by funding projects that lower emissions or produce carbon-free power. Minnesota’s proposed green bank, known as the Minnesota Climate Innovation Finance Authority, would create a new public-private partnership structured as a nonprofit organization with a publicly appointed board. 

Green banks are established using public funding, and seek to leverage those dollars to generate more private investment. Being mission driven and publicly financed means green banks can prioritize environmentally friendly projects, not pure profit chasing. 

“It’s an opportunity to pool resources to leverage federal and private funding to bring in the clean energy transition here in Minnesota,” said Senator Tou Xiong, DFL-Maplewood, who is carrying the bill in the state Senate.

Green banks accomplish that by reducing perceived risks of investment for traditional financial institutions. By assuming a portion of the risk, green banks can effectively lower interest rates or guarantee a rate of return for hesitant private investors. 

There are 25 green banks operating in 18 states and Washington D.C. today, according to the nonprofit Coalition for Green Capital. Since 2011, those banks have leveraged $4.2 billion to attract $14.8 billion in public and private investment. Green banks differ in structure, but are generally public or semi-public institutions that issue loans. 

Capturing federal dollars

Xiong said the proposed green bank will help garner newly available federal funding in addition to attracting private investment. 

The 2022 federal Inflation Reduction Act created a $27 billion Greenhouse Gas Reduction Fund that the U.S. Environmental Protection Agency can use to allocate grants to states, cities, and tribal nations with communities that are low-income and disproportionately polluted.

“We don’t want to miss out on any rounds of funding,” Xiong told Sahan Journal. 

A rough estimate shows Minnesota could qualify for $350 million from those funds, according to Representative Emma Greenman, DFL-Minneapolis, who authored the House version of the bill. The proposed green bank’s fund would be self-sustaining in about three years, Greenman said. 

“Now is the time to do this,” Greenman said. 

Minnesota’s green bank would operate as a nonprofit with an 11-member board comprised of four state department commissioners, the chair of the Minnesota Indian Affairs Council, and six members appointed by the governor. The board would be required to represent the state’s geographic and demographic diversity. 

The board would hire an executive director and staffers to carry out operations. The staff would include “navigators” who could help provide project participants with information about potential sources of financial assistance. The proposed state law requires the green bank to develop a long-term investment strategy by the end of 2024.

The green bank would have the ability to enter into financial agreements with federal and state agencies, local governments, corporations, and individuals. It would have the ability to issue loans and enter financial agreements with lenders. Critically, the green bank would be charged with analyzing the financial needs of projects aimed at reducing greenhouse gas emissions in Minnesota, and recommending solutions to funding shortfalls. 

Tools available to the green bank include the ability to provide assurances to mitigate risks to investors. That includes provisions such as loan guarantee or loan loss reserve—a reserved pool of capital that can partially reimburse a private lender if a customer defaults. 

While the green bank would work with individuals on personal projects, it would not serve as a conventional bank where the public could open checking and savings accounts. There is no charge in the bill to establish a physical location for the green bank. 

Investment matters

Green banks are a great way for states to leverage public dollars for continued investment in climate friendly projects like weatherization for aging buildings or constructing solar arrays, according to J.Timmons Robert, a professor of environmental studies and sociology at Brown University. But their impact is largely determined by how strongly the institutions are supported. 

Connecticut created the nation’s first green bank in 2011, and has been very successful, Robert said. But in nearby Rhode Island, the institution was understaffed and didn’t receive strong initial funding. If a state wants to create a green bank, it should commit to it, he said. 

“Green banks are a nice idea and can have measurably positive impacts, but unless you invest in them with the funding and capacity staffing, it might not amount to much,” Robert said.  

The success of green banks depends on expectations. The return on investment will be lower than traditional banking targets, Robert said, but it’s still more sustainable and continuous than states issuing one-time grants for projects. 

Xiong’s goal is to convince legislators to initially invest $45 million in the green bank. Right now, the legislation has $20 million appropriated, but Xiong is optimistic more funding will be allocated in the conference committee process used to reconcile differences between House and Senate versions of the bill. 

The main advantage of green banks is that as a loaning institution, it earns returns on its investments and can continuously grow. Minnesota currently appropriates millions of dollars in small and large grants to local governments, businesses, and nonprofits to lower emissions. While those projects provide financial and environmental benefits, they don’t generate returns that can be reinvested. 

“We want this green bank idea to be self-sustainable,” Xiong said. 

Xiong is hopeful the green bank could help spur projects like rooftop solar for schools and nursing homes, and ramp up weatherization efforts in low-income communities to save people money and lower emissions. 

Xiong grew up in Maplewood in a family of eight kids, and remembers his mom stressing about the energy bill. Their home’s insulation wasn’t great, and it impacted the family. 

“It was hard to study when you’re freezing your butt off,” he said. 

Bundling for success 

The green bank could be a game changer, according to Amber Naqvi, CEO of Lake Street Solar. His company has a mission to bring solar installations to businesses run by people of color along Lake Street in south Minneapolis, he said at a March 28 press conference. 

His company’s model is to provide upfront funding for solar projects. Businesses pay off Lake Street Solar using profits from energy credits in about seven years, at which point the company transfers full ownership of the solar arrays to that company. 

“This is a great way for us to provide the initial capital and give the opportunity for solar to get deployed,” Naqvi said. 


The legislation would allow multiple related projects to be bundled together to receive financing. Naqvi said that traditional banks often tell him they are interested in investing in large $10 million projects, not smaller, $1 million projects. A green bank could help group smaller projects into one funding pool to make them more appealing, and get more solar deployed faster, he said. 

The bill includes prevailing wage requirements for projects funded by the green bank, which proponents say will supply quality jobs throughout the state. 

“The next ten years are really critical,” Timmons said of efforts to reduce carbon emissions. States that invest now will be better off in the future, he added.  

A recent Intergovernmental Panel on Climate Change report says developed nations must push for carbon neutrality as fast as possible if global warming rates are to remain below 1.5 degrees Celsius. To do so, global emissions will need to be reduced by nearly half by 2030. 

Greenman said a goal for the bill is to fund projects in communities of color that experience high levels of pollution and in areas where fossil fuel based jobs, such as working in coal plants, are going away. 

The Minnesota Climate Innovation Finance Authority is currently included in both House and Senate climate omnibus bills, and Xiong is optimistic that it will pass this session. Governor Tim Walz has said he supports the green bank initiative. 

Andrew Hazzard is a staff reporter with Sahan Journal who focuses on climate change and environmental justice issues. After starting his career in daily newspapers in Mississippi and North Dakota, Andrew...