Green Revolving Funds: An Introductory Guide to Implementation & Management
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A co-publication of the Sustainable Endowments Institute &
the Association for the Advancement of Sustainability in Higher Education
Green Revolving Funds:
An Introductory Guide to Implementation & Management
Joe Indvik, ICF International
Rob Foley, Sustainable Endowments Institute
Mark Orlowski, Sustainable Endowments Institute
University of British Columbia, Earth Science Building, Perkins and Will
Partners
A M E RICA N C OLL EGE & U N IVERS ITY
P RE S I D E N TS’ C LI M AT E C OM M I T M E N T
An Introductory Guide to GRF Implementation & Management
Second Nature
Education for Sustainability
Funders
Prepared by ICF International for the Sustainable Endowments Institute
© 2013 Sustainable Endowments Institute and the Association for the Advancement of Sustainability in Higher Education
Sustainable Endowments Institute | 45 Mt. Auburn Street, Cambridge, MA 02138 • 617.528.0010
www.endowmentinstitute.org • info@endowmentinstitute.org
Published January, 2013
2
Table of Contents
Executive Summary Pg. 4
Chapter 1 What is a Green Revolving Fund? Pg. 6
Chapter 2 The Anatomy of a Green Revolving Fund Pg. 9
An Introductory Guide to GRF Implementation & Management
2.1 Seed capital
2.2 Accounting systems
2.3 Fund oversight
2.4 Fund operations and project selection
2.5 Project criteria
2.6 Measuring savings
2.7 Long-term strategy
Chapter 3 10 Steps to a Successful GRF Pg. 16
Step 1: Do your homework
Step 2: Select your model
Step 3: Assess opportunity and run the numbers
Step 4: Build buy-in
Step 5: Secure seed capital
Step 6: Establish financial flows
Step 7: Launch and manage
Step 8: Implement projects
Step 9: Track, analyze, and assess performance
Step 10: Optimize and improve
Chapter 4 Common Obstacles to GRF Implementation Pg. 23
Chapter 5 The Billion Dollar Green Challenge Pg. 25
About the Authors & Acknowledgements Pg. 27
3
Executive Summary
The goal of this introductory implementation guide
is to provide practical guidance for designing,
implementing, and managing a green revolving fund
(GRF) at a college, university, or other institution.
An Introductory Guide to GRF Implementation & Management
The GRF model is widespread in higher education,
with at least 79 funds in operation in North America
representing over $111 million in committed
investment as of late 2012. GRFs have proven their
ability to reduce operating costs and environmental
impact while promoting education and engaging
stakeholders. The number of GRFs in operation has
increased 60 percent since 2010 and 15-fold in the University of Colorado Boulder, Center for Innovation and Creativity
last decade (see Greening the Bottom Line 2012 report).
The Guide is informed by data and insights from
In 2011, the Sustainable Endowments Institute (SEI)
schools that have already incorporated GRFs into
launched The Billion Dollar Green Challenge, an
their campus operations. It includes information
initiative that encourages colleges, universities, and
from (1) interviews with dozens of stakeholders
other nonprofit institutions to invest in their own
representing institutions that vary in size, setting,
GRFs. As part of this initiative, SEI has researched
and wealth; (2) research conducted by SEI, AASHE
GRFs at a wide range of institutions and has
and other organizations; (3) and the direct experience
developed a suite of tools and resources to support
of its authors in implementing and advising on GRFs
GRF adoption (see Chapter 5: The Billion Dollar
at a variety of institutions.
Green Challenge).
Anyone interested in establishing, managing, or
However, it can be difficult to establish and
researching GRFs will benefit from this Guide.
manage an effective GRF. There is a need for a
While the Guide is targeted at higher education,
guiding document that taps into the expertise
its principles can be applied to many other sectors,
of presidents, administrators, facility managers,
including K-12 schools, healthcare institutions,
sustainability directors, students, consultants, and
municipalities, and private companies.
other stakeholders with GRF experience to establish
best practices. This Guide—a co-publication of This introductory guide is not intended as a technical
SEI and the Association for the Advancement of guidance document, but rather as a high-level
Sustainability in Higher Education (AASHE)—is overview of GRF establishment and management. A
intended to fulfill that need. more detailed comprehensive guide will be available
in spring 2013. Key chapters are summarized below.
4
Chapter 1: What is a Green Chapter 3: 10 Steps to a Successful
Revolving Fund? Green Revolving Fund
Chapter 1 introduces readers to the green revolving Chapter 3 of this Guide includes a step-by-step
fund (GRF) concept. A GRF is an internal fund that roadmap for how to design, implement, and manage
provides financing to parties within an organization a successful GRF. A few key themes are present
to implement energy efficiency, renewable energy, throughout all 10 steps. First, use existing research
and other sustainability projects that generate and strong data analysis to inform your GRF strategy
cost-savings. These savings are tracked and used when building the case for the fund, setting up its
to replenish the fund for the next round of green structure, and identifying and selecting projects.
investments, thus establishing a sustainable funding Second, dedicate time and resources to undertaking
cycle while cutting operating costs and reducing a thorough stakeholder engagement process, both to
An Introductory Guide to GRF Implementation & Management
environmental impact. build buy-in and to leverage the insights of experts
There are several advantages of GRFs that go beyond on your campus to improve the fund. Third, tailor the
one-time investments. Revolving funds build the mission, structure, and management of your fund to
business case for sustainability, engage and educate the unique characteristics of your institution.
the campus community, convey reputational benefits, Chapter 4: Common Obstacles
and create fundraising opportunities in a way that to Green Revolving Fund
conventional investments do not. GRFs are being
successfully employed by a wide range of schools—
Implementation
including public and private institutions with varying Several obstacles are often encountered during
sizes, locations, strategic priorities, and levels of GRF development and management. Chapter 4
endowment wealth. These funds regularly achieve of this Guide outlines those issues and offers best
high financial returns, with a median return on practices for overcoming them based on insights
investment of 28 percent annually. from GRF leaders. To avoid financial obstacles,
gain a comprehensive understanding of your
Chapter 2: The Anatomy of a Green institution’s accounting system, incentive structure,
Revolving Fund and sustainability investment portfolio to inform the
design of your fund. To overcome administrative and
No two GRFs are the same. Chapter 2 of this
political obstacles, build a strong business case for the
Guide discusses how each component of a GRF can
fund using performance forecasts and comparisons
be designed, customized, and optimized for your
with peer institutions.
institution. Sources of GRF seed capital are diverse
and include administrative budgets, endowment
assets, student fees, and alumni donations. Fund
To the readers of this guide
accounting may be done using either the loan model, Whether you are a student leader excited about the
in which funding is distributed to individual project prospect of reducing your school’s carbon footprint,
owners, or the accounting model, in which funding a sustainability coordinator building a strategic
is transferred to and from a central account. There plan, a facility manager exploring options for energy
are also several options for fund oversight, such as efficiency retrofits, an administrator seeking advice
the use of a management committee or housing the on GRF management strategies, or a researcher
fund in a specific office. Funds may differ in terms of interested in innovative sustainability financing
their project criteria—such as payback requirements mechanisms, we hope you find this Guide to be a
or environmental benefits—and whether they track useful resource. Through this document, our goal
project savings using engineering estimates or is to facilitate the continued growth of GRFs as
empirical measurement. an effective tool for cutting expenses, reducing
environmental impact, and enriching campus
communities.
5
Chapter 1:
What is a Green Revolving Fund?
This chapter: Green revolving funds are often managed by
• Provides a high-level overview of the GRF model a committee drawn from different stakeholder
groups on campus. These may include students,
• Discusses some common arguments for investing faculty, facility or energy managers, administrators,
An Introductory Guide to GRF Implementation & Management
in a GRF sustainability coordinators, and others. Funds may
also be managed directly by administrators or by the
Facilities, Finance, or Sustainability Office. While
2.1 The green revolving
GRFs can finance many types of projects, they
fund model typically target energy, water, and waste reduction
Facing budget cuts and rising energy costs, many due to their potential cost savings. Projects have
educational institutions are grappling with how to included lighting upgrades, boiler replacements,
finance urgently needed—but capital intensive— water pipe insulation, low-flow toilets, building
energy efficiency upgrades on campus. One strategy envelope upgrades, solar panels, and more.
for overcoming these challenges is creating a green After reviewing a variety of funds in higher
revolving fund (GRF). A GRF is an internal education, SEI developed the following two
investment vehicle that provides financing to parties criteria for a green revolving fund:
within an organization for implementing energy 1 The fund must finance measures that reduce
efficiency, renewable energy, and other sustainability resource use (e.g., energy, water, waste) or mitigate
projects that generate cost-savings. These savings greenhouse gas emissions (e.g., renewable energy).
are tracked and used to replenish the fund for the
next round of green investments, thus establishing 2 The fund must revolve so that at least some of the
a sustainable funding cycle while cutting operating savings generated by reducing operating expenses
costs and reducing environmental impact. are required to be repaid to the fund, thus providing
capital for future projects.
Figure 1: How Green Revolving Funds Work
How Green Revolving Funds Work
DATED HEATING
2. Finance efficiency project
SYSTEM with Green Revolving Fund YEAR SAVINGS
1 2 3 4 5 6 7 8
ENERGY
USE
1. Identitfy energy 3. Repay loan from energy savings,
EFFICIENCY
waste on campus UPGRADE
Reinvest new monetary savings
6
2.2 The case for green Convey reputational benefits: A GRF can
revolving funds signal your institution’s commitment to sustainability
and operational efficiency in a way that one-time
Non-revolving investments from an operating investments cannot. It is a unified, purposeful
budget, capital budget, or endowment can also investment vehicle that generates more positive press
drive improvements in campus environmental than conventional top-down investments.
performance. So why should you adopt a GRF?
Catalyze a culture shift: A GRF also
There are several key advantages that revolving funds represents a commitment to larger strategic goals,
hold over traditional non-revolving expenditures. such as greenhouse gas reductions, and provides a
An Introductory Guide to GRF Implementation & Management
Revolving funds: tangible vehicle for achieving them. “A GRF provides
Demonstrate the business case for constant focus on the idea that you want continuous
improvement until you get to a carbon footprint of
sustainability: Despite the large cost-saving
zero,” says Anthony Cortese, Founder and Senior
potential of energy efficiency and sustainability
Fellow at Second Nature and Trustee of Tufts
investments, many institutions perceive them as
University and Green Mountain College. “That
an expense only. Rather than simply allowing the
doesn’t happen if you use debt financing or some
savings from these projects to be absorbed into the
other kind of capital financing.”
operating budget, a GRF tracks the savings distinctly
and directs them into future projects—thus creating a
Create a programmatic approach: A
measurable return on investment (ROI).
GRF creates a formalized program of sustainability
Established GRFs report a median annual ROI of
investments rather than a series of one-off projects.
28 percent (see SEI’s Greening the Bottom Line 2012
GRFs typically include specific requirements to
report), reliably outperforming average endowment
ensure fiscal discipline, environmental responsibility,
investment returns while hedging against rising
and a clear financing process that funnels savings
energy costs.
from past projects into current spending plans. In
Engage and educate the campus some cases, this source of funding actually enables
community: Whereas traditional capital projects to be implemented that would otherwise
improvement investments are typically managed by be omitted. For example, the University of New
a small team of administrators, a GRF can bring Hampshire historically struggled with a complicated
diverse stakeholders together to make decisions about financing process that sometimes prevented them
investments and build a sustainability strategy. GRFs from investing in high-return energy efficiency
can also issue loans to projects proposed by students projects. “A GRF allowed us to get the wrinkles
and other community members, thus promoting out and allowed everyone to say ‘I trust this
entrepreneurship and outside-the-classroom methodology,’” says Matt O’Keefe, Energy Manager
learning. at UNH.
7
Leverage savings into opportunity:
GRFs are a great way for organizations to capitalize
on the savings from energy efficiency projects to
promote sustainability in general. For example,
Dartmouth College’s GRF directs 10 percent of
the savings from 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.
An Introductory Guide to GRF Implementation & Management
Track performance: You cannot manage what Lane Community College – Health & Wellness Center. Large
you do not measure. A GRF creates a streamlined projects funded by GRFs can generate a high volume of savings
process for an institution to distinctly track, manage, while providing a visible symbol of an institution’s commitment to
sustainability.
and analyze the financial and resource savings
resulting from sustainability projects. The Green
Revolving Investment Tracking System (GRITS) way that does not lend itself to a revolving approach.
was developed as part of The Billion Dollar Green Potential GRF adopters should carefully weigh the
Challenge, and collects, standardizes, and analyzes associated pros and cons of the model to ensure that
data related to GRF performance (see Section 5.3: it is appropriate for them.
Resources).
Seize new fundraising opportunities:
Some institutions have had success with fundraising
for a GRF, both from alumni and external
foundations. For example, President Elizabeth Kiss
and her development team at Agnes Scott College
raised over $400,000 in seed capital from donors
within a few months by pitching their fund’s strong
ROI and its potential to turn the campus into a living
laboratory for sustainability.
Despite the strong case for the GRF approach, it
may not be the best strategy for every institution.
For example, an institution may not yet want to
commit the cost-savings from energy efficiency
to future projects until it has verified that there
are enough investment opportunities available to
absorb such funding. In other cases, an institution’s
procedure for financing projects may be set up in a
8Chapter 2:
The Anatomy of a GRF
This chapter: 2.1 Seed capital
• Discusses key components that make up a green
Capital for a GRF may be obtained from a variety
revolving fund strategy
of funding sources, and some institutions have
An Introductory Guide to GRF Implementation & Management
• Provides a menu of options for how each fund combined multiple sources. Potential seed funding
component might work sources are discussed below.
• Provides recommendations for tailoring each Operating budgets
component to your institution
Annual operating budgets are the most common
source of GRF seed capital. This budget is often the
No two green revolving funds are exactly the same.
most readily available and flexible funding source,
While all GRFs finance measures that improve
and because the savings that GRF projects generate
environmental performance and use the associated
will often come from the operating budget, it may
cost-savings to finance future projects, they can differ
be seen as the most appropriate source of seed
on a wide range of parameters including structure,
capital. An operating budget may provide a one-time
size, mission, management, project criteria, funding
infusion of capital or multiple infusions over time to
sources, payback requirements, and more.
scale the fund gradually.
Successful funds will be tailored to the distinct
structure and culture of their home institution. Within operating budgets, common sources can
Perhaps the most powerful attribute of the GRF include the facilities, sustainability, or energy
model is that each of its components can be adapted budgets, as well as other departmental budgets or
to the unique challenges, goal, and opportunities that administrative funds. In some cases, shrewd fund
you face. Key components are discussed below. proponents have been able to tap into unused
or underutilized budgets to launch a GRF, thus
converting these funds into a high-return investment
opportunity. For example, the University of Vermont
is using a portion of its cash reserves— normally held
in low-risk investments before being spent—to seed
its GRF.
9Endowment principal Students
An institution may also invest its endowment funds Student sources of capital include a green fee
directly into a GRF. Given recent volatility and risk levied on students (either mandatory or voluntary)
in financial markets, investing in high-return, low- or student government funding. If proposing a fee,
risk sustainability projects on campus may present it is advisable to first conduct a willingness-to-pay
a favorable option for endowment managers. Refer analysis by polling the student body to: 1) assess
to SEI’s GRF Investment Primer for more detailed support for the fee, 2) determine the optimal size of
guidance (see Section 5.3: Resources). the fee, and 3) estimate the revenue that the fee will
generate for planning purposes.
Utility rebates and incentives
Utility companies often offer programs to large Donations and grants
An Introductory Guide to GRF Implementation & Management
institutional customers to encourage them to reduce Many institutions, especially colleges and
energy use, such as rebates, demand response, universities, have relationships with outside
or other incentives. In exchange for conserving foundations or other donors who seek to foster
electricity or natural gas through upgrades and research and improve programs and operations.
retrofits, colleges and universities are often given GRFs are often appealing because of their
reduced rates or cash rebates, which they can interdisciplinary scope, ability to promote education
then use to seed a GRF. Sometimes GRF project and engagement, and environmental and economic
savings then translate into even further incentives benefits. The Jessie Ball duPont Fund recently
from the utility company. launched the first foundation grantmaking program
in the country specifically designed to help seed
Capital budgets green revolving funds at a select group of colleges.
Institutions often have funds set aside for large capital Some funds start with a few large alumni donors,
projects such as new construction and renovations. and others are part of targeted sustainability or
These funds may be housed within a facilities budget, broader fundraising campaigns. A gift to a GRF
within the endowment, or as a separate budget combines the immediate impact of an annual fund
entirely. Capital budgets are often already used to gift with the longevity of an endowment gift. A
fund large energy efficiency projects, making them a hypothetical $100,000 contribution will provide
logical source of seed money. more than $555,000 in cumulative savings to the
institution over 10 years (based on the median 3.5
Cost-savings or revenue from year project repayment period reported in Greening
existing projects the Bottom Line 2012).
A GRF can be financed from savings or revenue
being generated by projects that were financed by Government funding
other means. This may provide a low-risk option if A variety of government programs exist that can
decision-makers are hesitant to commit capital to a be used to seed a GRF, including programs at the
GRF without proof of actual savings from projects federal, state, and local levels. Institutions have used
within the institution. For example, the savings both American Recovery and Reinvestment Act
from a lighting upgrade or revenue from the sale of (ARRA) grants and state energy efficiency programs
renewable energy credits (RECs) from on-site solar to either start funds directly, or to implement projects
power generation may be used to start the whose savings are then used to seed a revolving fund.
fund without requiring additional capital.
10Key considerations for seed capital 2.2 Accounting systems
There is often a tradeoff between risk and reward when
The accounting system is the backbone of a GRF.
allocating funding to a GRF. Large capital allocations
This component includes the accounts, stakeholders,
from existing sources (e.g., an endowment or capital
procedures, and rules that are involved in moving GRF-
budget) enable the fund to finance large capital-
related money within the institution. Accounting is
intensive projects that will produce a high volume of
often the most complex component of successful fund
savings. Large funds are also more likely to become
design, so it should be addressed early.
firmly established because they have more flexibility to
finance projects and pay fund management expenses,
Accounting systems can be divided into
but they represent the most institutional commitment.
two broad categories:
An Introductory Guide to GRF Implementation & Management
Conversely, incremental funding strategies (e.g., annual
allocations from the operating budget, savings from Under the loan model, the project applicant (e.g.,
existing projects, or an annual student fee) put fewer department, school, campus group, etc.) actually
resources in play if the fund encounters obstacles, but borrows money from the fund via a budget transfer.
this may prevent the fund from becoming established The project owner is then responsible for repaying the
and quickly achieving the highest cost-savings. loan (with or without interest, see next section), using
the savings the project produced within his or her own
Many institutions have started their funds small to campus unit. This model works best when project
demonstrate effectiveness, then scaled up once the applicants have control over distinct operating budgets,
administrative structure is operational. As Rosi Kerr, discrete ownership of projects, and facilities staff or
Dartmouth College’s Sustainability Director, noted, building technicians to assess potential improvements.
“I would rather start small and knock it out of the park
than bite off more than we can chew initially.” For Under the accounting model, funds are transferred
example, the Harvard Green Loan Fund was capitalized to the project applicant, or to a central facilities
with $1.5 million in 1993, and was revived and department, but repayment is made via a transfer of
enlarged to $3 million from the President's Office funds back into the GRF from a centrally managed
budget in 2001. As a result of its consistent success, it operating budget (often utilities) where the savings
was doubled in 2004 and again in 2006 to arrive at its were generated. The project recipient typically does
current size of $12 million. However, other schools not have discrete ownership of the project. This model
such as Macalester College have encountered problems works best when there are no autonomous entities
with starting small, finding that less capital in a GRF (e.g., colleges, schools) within an institution, or when
leads to a proportionately higher administrative cost those entities draw from the same central budget. The
and burden on staff, and less flexibility in choosing and GRF may be a distinct account (often with its own
installing projects. account number) or it may take the form of a concept or
agreement (e.g., a line item on annual budgets) without
When deciding how to size your fund and at what rate maintaining a physical account balance.
(if any) to scale it over time, factors to consider include
1) the volume of potential projects and their ability to Successful funds have been developed using both
absorb capital, 2) your institution’s tolerance for change models. The key lesson across all institutions is that
and financial innovation, and 3) the capacity of your the GRF accounting system must be tailored to work
fund management team and facilities department to within the existing system. A GRF is not a pre-defined
support project implementation.
11entity to be adopted wholesale; it is a flexible concept 2.4 Fund oversight
that can be molded to fit with your institution’s
current standards and practices. Experience has The set of stakeholders tapped to oversee a GRF
shown that adapting the model is crucial for smooth is another key consideration that affects both the
implementation. SEI’s GRF Investment Primer (see politics of the fund and its performance. There
Section 5.3: Resources) provides more discussion. are three broad options for selecting projects and
managing the operations of a GRF (the details of
2.3 Payback mechanics management are discussed in Section 2.5: Fund
Operations):
The size and timing of repayments to the GRF may
also be customized. For example, projects may repay • A management committee is the most common
An Introductory Guide to GRF Implementation & Management
only a portion of their savings to the fund each fiscal GRF leadership model. Such a committee may
year or period. Alternately, they may be required to be formed from a pre-existing body such as a
repay an amount greater than the original loan value, working group or may be formed specifically for
either by paying interest on outstanding loan balances the GRF. Stakeholder groups who will be involved
or by repaying more than 100 percent of the loan with or affected by the fund (e.g. students, facility
value in total. In some cases, an administrative fee has managers, faculty, administrators) should typically
been levied on projects in order to cover the fund’s be represented on this committee to maintain buy-in
operating costs. Where GRFs target mainly projects and contribute their expertise.
that create savings in the central utilities budget,
interest or a fee is sometimes charged only on loans • Staff and resources from a relevant office may be
for departments outside of the central budget such used to oversee the fund—often the finance, facilities,
as athletic stadiums or student government-owned or sustainability office.
buildings. • A dedicated manager may be appointed
There is often a tradeoff between making GRF specifically to run the fund, or fund management
financing attractive to funding applicants and the may be added to the job responsibilities of a current
need to cover administrative costs or grow the fund administrator.
over time. Project recipients might prefer to retain a
Management by committee is often advantageous
portion of annual savings, but it will be at the expense
for several reasons. First, it leverages the unique
of quickly replenishing the fund. Similarly, charging
breadth of expertise in a campus community. Second,
interest or requiring repayment over and above the
it promotes engagement and awareness of the fund.
loan value will allow the fund to grow organically
Third, it promotes cross-disciplinary collaboration
without additional capital infusions, but this
and innovation. Fourth, it reduces the burden that
places a higher cost on project owners. The correct
falls on any one member of the committee. If a
balance will depend on your institution’s political
student green fee or student government funds
environment and the goals of your fund.
are used to capitalize the GRF, it is particularly
important to have student representation on the fund
committee. However, a smaller management team
housed in a single office may offer tighter control of
financing and a more streamlined process for issuing
loans.
12In some cases, the leadership structures highlighted 2.6 Project criteria
above have been combined, with different groups
managing different aspects of the fund. For example, When assessing potential projects, it is helpful
a sustainability director or administrator may serve for fund managers to work from a specific set of
as the fund manager and coordinate the operations project criteria. These criteria may include both
of the fund, with a committee (sometimes chaired by hard requirements and preferred attributes. Some
the fund manager) that selects projects and provides common project criteria include:
guidance.
• Payback duration
2.5 Fund operations and • Capital cost
project selection
An Introductory Guide to GRF Implementation & Management
• Specific environmental benefits such as resource
conservation or greenhouse gas reduction
The management of fund operations involves a
broad array of duties. Many institutions create • Cost-effectiveness metrics such as greenhouse
a GRF charter, an official and publicly available gas reduction per dollar of capital cost
document that explains how the fund operates. This • Potential for community engagement and
is particularly important when campus community collaboration
members will be applying for GRF financing.
• Educational benefits
Charters are often developed from a written proposal
used as a forum for discussion during fund design Project criteria should be selected based on two
and may use much of the same language (see Steps factors. First, they should promote the mission of
2, 4, and 7 in Chapter 3 for more discussion of the fund. A GRF that is focused on maximizing
proposals, charters, and other documentation). operational efficiency might have aggressive payback
requirements, whereas a fund that emphasizes
It is important to clearly specify your fund’s
community engagement might favor projects that
procedure for reviewing, evaluating, and selecting
are student-led. Second, criteria should be tailored to
projects. Project selection may be conducted by
the actual portfolio of projects that are available for
soliciting applications from the campus community
investment.
and putting them through a competitive process.
Alternatively, fund managers may select projects Consider incorporating flexibility in project
non-competitively. For example, they may compile requirements at the discretion of the fund managers.
a prioritized list of potential projects identified They may need to adapt as the portfolio of
via an energy audit and select projects from this available projects changes over time or as unique
list. If using this approach, it is advisable to have a opportunities arise. For example, a project may
representative from the facilities department either compensate for failing to meet financial requirements
on the management team or in close contact with with outstanding performance in other areas such
the team in order to streamline this process. Projects as education, engagement, or tackling deferred
may also be identified from previously existing lists maintenance. In addition to specific criteria, projects
such as deferred maintenance, or through research by should also be prioritized in a way that best allocates
other groups on campus. limited resources while accounting for the feasibility
and timing of projects given other constraints, such
as staff availability.
132.7 Measuring savings performance unless necessary. Other schools, such as
the University of Denver, perform both upfront and
The GRF model relies on capturing cost savings retroactive M&V on larger projects, and use project
to replenish the fund, so the method by which specifications and engineering estimates for smaller
those savings are measured is crucial. There are ones.
two main strategies that fund managers may use to
calculate savings from projects in order to determine 2.8 Long-term strategy
repayment amounts.
A GRF can drive broader strategic initiatives,
First, fund managers may use front-end savings including Sustainability Master Plans or Climate
estimates based on engineering analysis. This method Action Plans (CAPs). When defining your fund’s
An Introductory Guide to GRF Implementation & Management
relies on technology specifications and assumed long-term vision, consider two key possibilities. First,
usage patterns to predict future performance. This is it is often effective to tie the fund to long-term goals
the most straightforward and inexpensive approach, like emissions reductions or capital improvement
but it will not capture any deviations in the event that plans, both when building buy-in for a GRF and
a project performs better or worse than expected. when operating it. This connects the fund with
Second, fund managers may retroactively calculate other initiatives and may provide a source of capital
savings based on actual performance. This entails to meet campus objectives. Second, GRFs present a
using a measurement and verification (M&V) unique opportunity to bring campus stakeholders to
approach to directly meter savings while accounting the table—both as part of a management committee
for conflating factors like weather and usage patterns. and as project applicants. This can create a forum
This approach is more accurate but also more costly for collaboration and innovation that goes beyond
and labor-intensive. financing.
There are several potential levels of rigor for M&V “The climate issue and the challenge
analysis. An institution may perform rigorous
building energy modeling based on submetering
of making affordability and
data, or it may measure pieces of equipment accessibility of higher education a
individually and extrapolate for the full set of
priority—the two work together.
equipment installed. Another option is to conduct
a less rigorous assessment of whether utility costs are It’s not one versus the other,” said
decreasing over time. This will not be sufficient to Anthony Cortese, Founder and Senior
calculate project repayments, but it can help verify
that a project or portfolio of projects is decreasing Fellow at Second Nature and Trustee
costs broadly. of Tufts University and Green
Some institutions benefit from a best of both Mountain College. “A GRF is a way
worlds approach in which the loan approval and
repayment schedule are based on estimated savings,
to get a serious focus on deferred
but M&V is then performed to verify that the maintenance at the same time that we
project is functioning according to projections.
push toward dramatically reducing
This has the added administrative benefit of not
requiring updates to the repayment process based on the carbon footprint.”
14GRF Anatomy in Practice: Four Case Studies of Successful Funds
School Seed Fund Accounting Project Measuring
Funding Oversight System Criteria Savings
Alumni and Sustainability Accounting Payback critical for Repayments based
foundation Steering model selection – flexible on estimates and
donors, utility Committee time periods measured savings
savings
An Introductory Guide to GRF Implementation & Management
Sustainability
Money market Director and Energy Accounting 6-year payback Repayments based
fund within Manager; with model requirement on estimates and
approval from AVP measured savings
endowment
of Facilities and VP
of Business and
Finance
President’s Director of Loan model 5-year payback Repayments
administrative Sustainability; requirement based on estimated
funding Advised by Loan savings but
Fund Advisory confirmed with
Committee measurement and
verification
Operating cash VP of Finance and Accounting 7-year payback Varies by
reserves Administration; model requirement; GRF project
Advised by returns 5 percent
Energy Initiatives of its outstanding
Committee balance annually
to cash reserve
For example, the University of New Hampshire Matt O’Keefe, Energy Manager of UNH, notes that
formed an Energy Working Group with the goal of their GRF has turned energy efficiency projects into
meeting its greenhouse gas emissions reduction targets a consistent program rather than a series of one-
under its CAP. When the GRF was established, this off investments, which has increased interest from
group became the management committee for the fund potential funders. “We’ve already leveraged the fund
and now uses the fund as the main financial instrument to participate in larger programs and receive grant
to drive progress toward CAP goals. money,” he says. For example, a grant of $50,000 for
a solar power installation might turn into $400,000
of investment over 10 years as savings revolve. “I talk
about how money will be leveraged into this program,
and people are a lot more interested.”
15Chapter 3:
10 Steps to a Successful GRF
This chapter: Step 1: Do your homework
• Presents a step-by-step guide to designing,
The first step in developing a successful GRF is to
implementing, and managing a GRF
gain an understanding of the range of GRF models
An Introductory Guide to GRF Implementation & Management
• Provides key considerations and resources and to begin thinking about how the design of your
for each step fund can be tailored to your institution. Much work
has already been done in this area, and using existing
This chapter provides a roadmap for designing, materials can cut months from the fund development
implementing, and managing a successful GRF. process. There are two key areas in which research is
These steps will aid you in developing a fund that: crucial.
1) maintains high financial and environmental
First, learn about GRFs in use at your peer
performance, 2) effectively engages key stakeholders
institutions. Gain a basic understanding of how
on campus, and 3) is tailored to the unique
these funds are structured, the types of projects they
character of your institution. While each fund
typically finance, and popular variations on the GRF
development process will differ by institution, this
model in use by institutions similar to your own.
chapter provides a general framework that is widely
Several resources have been assembled as part of
applicable across institutions. Each step addresses
The Billion Dollar Green Challenge to facilitate this,
a separate component of the GRF creation process,
including GRF case studies as well as Greening the
and they are positioned roughly in the order they
Bottom Line 2012 (see also Section 5.3: Resources).
should be conducted. However, the steps are often
A keen understanding of GRFs at peer institutions
interconnected. Elements of each step may need to be
can help build the case for your fund while providing
addressed before or after the point at which it is listed.
ideas for how to best adapt the model.
16“Don’t reinvent the wheel. Talk to Step 2: Select your model
other universities who have made this Early in the fund development process, tentatively
work and assimilate those programs outline a basic structure and mission for the fund.
GRFs have many variable elements that can be
into a custom program that will work adapted to the unique challenges, opportunities, and
at your school” said John Onderdonk, priorities of your institution. There are no established
Caltech’s Director of Sustainability rules for how a GRF must be structured, so be on the
lookout for opportunities to innovate.
Programs. Chapter 2: Anatomy of a GRF provides specific
An Introductory Guide to GRF Implementation & Management
guidance and decision points for each component
Second, be sure to examine the elements of your own
of a GRF.
institution’s operations that are relevant to a GRF.
These include: Fund design should be an iterative and interactive
process. It is often helpful to begin with a concept
• How are utility services distributed and paid on
proposal, which can serve as a point of discussion
campus? Is the entire institution run as one large unit
with stakeholders on campus as you seek their
or is the university split into smaller, autonomous
feedback. This may take the form of a document,
departments or schools?
presentation, or a few talking points. Engage key
• How is money transferred internally? Universities stakeholders with this proposal early and often, being
often have accounts associated with each department sure to include facility managers, energy managers,
and organization and it may be necessary to secure an sustainability directors, investment managers, and
account for the GRF. administrators in charge of operations and finance.
Student groups and faculty can also provide valuable
• Which stakeholders contribute to decisions about
feedback, particularly those active in sustainability,
facility operations and project finance? Who will
economics, and engineering. The goal of this initial
need to be consulted in order to build buy-in for
round of discussions is to identify logistical, political,
the fund?
and financial barriers to a GRF; develop a strategy
• What is the current state of energy efficiency and for overcoming these barriers; lay the groundwork for
auditing on campus? Have any studies been done to building future support; and refine the structure of
identify potential energy efficiency or sustainability your proposed fund to capture opportunities at your
projects? institution.
17Step 3: Assess opportunity Step 4: Build buy-in
and run the numbers A key component of developing a successful GRF is
In order to implement a successful GRF, it is thorough stakeholder engagement. First, determine
important to first understand its investment the key stakeholders and decision-makers whose
potential at your institution. This can be done by support will be required to establish and sustain
in-house facilities staff (they may already have a a GRF. Second, consider those stakeholders’
wish list of projects) or by hiring a contractor to responsibilities in the institution, the performance
perform an energy audit. If your institution has metrics on which they are evaluated, and how a
signed on to The Billion Dollar Green Challenge, GRF can be leveraged to help them meet their goals.
Third, engage those stakeholders to refine the GRF
An Introductory Guide to GRF Implementation & Management
consider consulting the project library of the
GRITS web tool (see Section 5.3: Resources) proposal so that it is in line with the needs and goals
for examples of projects typically financed by of all parties. A written proposal (building from the
GRFs. If the fund will solicit project applications concept proposal in Step 2: Select your model) can
from the campus community, it can be useful to be a helpful tool during this process. This document
determine in advance which projects are likely can serve as a forum for discussion and debate as the
to receive financing in the first round and assess GRF concept evolves, and in many cases it can evolve
their potential performance as well. into the fund charter once the proposal is approved.
The ideal result of this step is a pipeline of Note that building buy-in and a sense of collective
projects that the GRF will likely finance in ownership should be a continuous process that
the first few rounds of investment, including occurs along with all of the other steps. However, it is
estimates of the costs and savings associated with particularly important in the early stages, in order to
each project and a forecast of how the portfolio streamline the fund’s development and ensure that no
of projects as a whole will perform. Forecasting office or stakeholder is inconvenienced or left out.
the fund’s expected performance over the first
few years—including metrics like total savings, Step 5: Secure seed capital
annual return on investment (ROI), average
payback period, and net present value (NPV)—is The process of securing seed capital can range from
also helpful for building buy-in and tailoring a straightforward allocation of available funding
your fund model to maximize performance. This to a laborious multi-month process of consulting
can be done in GRITS or using custom-made decision-makers. It is therefore advisable to begin this
spreadsheets, which can then be used for tracking effort early. See Section 2.1: Seed capital for a review
once the fund is launched (see Step 9: Track of each potential source of seed funding.
performance for more information, including a One key strategy is to look for underutilized
sample performance analysis graph). capital, particularly if you are having difficulties
identifying potential funding sources. Because
of the high returns and low risk associated with
GRF investments, such a fund is often a favorable
alternative to allowing capital to go unused or poorly
used. To finance Caltech’s $8 million GRF, for
example, administrators tapped into a money market
18rainy day fund within the endowment that was going
largely unused while earning 1-2 percent annual
returns. The money now generates a return of 24
percent annually.
The size of the GRF and the amount of capital
to be raised should match your fund’s goals and
the campus’ potential for projects. Step 3: Assess
opportunity is crucial in order to determine an
appropriate size for the fund.
An Introductory Guide to GRF Implementation & Management
Step 6: Establish financial flows
Stanford University rebate from utility PG&E. Demand-side
All stakeholders should feel comfortable with the energ y efficiency is a sustainability cornerstone in Stanford’s en-
loan and repayment process. Before any project is erg y solutions portfolio. Such rebates are also often used for GRF
seed funding and project repayments.
undertaken, involved parties must understand:
• Who pays the project invoice, which account they Step 7: Launch the fund
use, and when those funds will be available
Launching the fund is an important process in and
• Which account will be making repayments over of itself, especially if your fund relies on project
the course of the loan, how often those repayments applications from the campus community. If your
will occur, and the total of each repayment as well as institution has joined The Billion Dollar Green
the overall repayment obligation Challenge, this is also a good time to reach out to The
• How all of these flows of money will appear on the Challenge network for best practices and guidance
various departmental budgets and balance sheets (if from those with GRF management experience.
multiple departments are involved) When launching a GRF, it is useful to have the
first round of funding planned out. The insights
Establishing this internal accounting procedure
from Step 3: Assess opportunity will be useful to
is the point at which many GRF proposals stall
that end. As projects are being implemented, make
or fail entirely, often because technical details are
sure to continue the planning process for future
overlooked by fund proponents or are met with red
waves of projects or applications, as well as for
tape. Be sure to begin engaging on this issue early in
fund management, outreach, and meetings of the
the process. Some institutions have an independent
leadership team. Planning for the future is important
account with its own ID number for a GRF while
not only to efficiently manage the fund and ensure
others simply make an agreement to acknowledge the
that its capital remains effectively invested, but
savings of the GRF as annual budgets are distributed
also to show campus stakeholders how the fund is
(see Section 2.2: Accounting systems). Look at how
progressing and demonstrate success.
external purchases are made at your institution and
how funds are transferred internally, then base flows
of GRF payments upon these preexisting channels.
19It is important to establish your fund in a way that Step 8: Implement projects
fits within the campus culture and administrative
structure. Specifically: Implementing the initial round of projects will
inevitably lead to challenges and unexpected
• Formalize the GRF with a fund charter, bylaws, obstacles. There may be difficulties with fund
memorandum of understanding, formal project transfers and accounting, changes in maintenance
criteria, and any other necessary guiding documents. plans that disrupt your expected pipeline of projects,
Be sure that all relevant stakeholders are aware of projects that underperform once implemented, and
these documents. other potential issues. See Chapter 4: Common
• Consider developing a website for the fund. This obstacles for specific challenges often encountered
can provide a useful venue for informing the campus and strategies for overcoming them.
An Introductory Guide to GRF Implementation & Management
community about the fund, posting official fund
One approach to reduce these risks is a soft launch in
documents, providing tools and resources for getting
involved or proposing projects, and reporting on the which the first round of investment targets projects
fund’s progress to the public. that are expected to be straightforward and are being
implemented by trusted project managers. Another
• Consider providing office hours for inquiries about strategy is to begin with a manageable fund size and
the fund. This is particularly important if you will scale it up over time as success is demonstrated (see
be soliciting project applications from the campus
Section 2.1: Key considerations for seed capital).
community, as questions will arise.
Nevertheless, inform stakeholders that obstacles
Finally, when the fund is launched and the first few
will likely arise, and recognize that how they are
rounds of investment are underway, there are a few
key questions to be evaluated to ensure the fund runs handled will set the tone for future operations.
smoothly. These include: Be sure to include all relevant stakeholders in the
troubleshooting process. Despite the pressure to
• Is the GRF identifying enough projects to utilize produce successes and prove the GRF model, work
its capital? Where else should you look? through challenges slowly and carefully. Publicize
• Are those responsible for managing the fund successful projects to place any challenges in the
communicating effectively with each other and context of the broader GRF program and continue to
with other stakeholders? Is enough staff time being justify the use of capital for the fund.
allocated to manage the fund? Fund managers should be in close contact with the
• Are stakeholder needs identified in Step 4: Build facility managers, engineers, or contractors who
buy-in being met? Are these expectations reasonable implement the projects and can therefore provide
in practice? If so, how can resources be directed to on-the-ground perspective. This will allow problems
meet them? to be identified and resolved more quickly. Monthly
or quarterly progress reports may be useful for this
• What questions are arising from stakeholders?
purpose.
Can resources be provided to address them?
20Step 9: Track, analyze, and assess Note that even if you have elected to determine
project repayments based on estimated savings only,
performance conducting some measurement and verification
Once the fund is operating, tracking the performance (M&V) of individual projects will help to confirm
of individual projects and the entire GRF portfolio that they are operating as expected. Find a balance
over time is the next important step. between what is necessary for project troubleshooting
and determining payback and what is feasible given
First, determine the method by which you will staff capacity and budget.
measure savings from individual projects (see
Section 2.7: Measuring savings). Install any required Second, develop a system for tracking and analyzing
submeters and establish baseline data before project the overall activity of your GRF project portfolio.
An Introductory Guide to GRF Implementation & Management
implementation, then create a spreadsheet or The GRITS tool is specifically designed for this
use another software application such as GRITS function. Institutions also often use spreadsheets
(see Section 5.3: Resources) to manage this data built from scratch or accounting software for this
over time. Thorough project tracking will involve purpose. Verify that overall GRF performance is
recording the specifications of technology installed consistent with the forecasts conducted in Step 3:
and estimating expected savings; comparing those Assess opportunity above. If there is a discrepancy,
estimates to usage rates determined early on via determine its cause. It is often helpful to conduct
energy monitoring to ensure that projects are forecasts that are updated each year to chart a path
operating correctly; and then confirming savings forward for the fund and manage expectations. See
more conclusively later on by comparing submeter the Sample GRF Portfolio Analysis graphic for an
data to the baseline you have established. example of how fund performance can be visually
represented.
Sample GRF Portfolio Analysis:
Fund balance and total institutional cost-savings over time
TOTAL SAVINGS
FUND BAL ANCE
PROJECT 3
PROJECT 2
PROJECT 1
Mar -13
Oct -12
Jun -13
May -13
Mar -14
Sep -14
Jul -13
Nov -13
Dec -13
Apr -13
Aug -13
Feb -14
Jul -12
Nov -12
Dec -12
Aug -12
Jan -14
Jun -14
Sep -13
May -14
Sep -12
Oct -13
Jul -14
Feb -13
Apr -14
Aug -14
Jan -13
This graphic demonstrates how total capital available to the GRF and cost-savings generated by GRF investments can be modeled
over time. Such a graph is useful for forecasting future performance, illustrating historical data, or a combination of the two.
21It is also advisable to benchmark the performance • If the fund is performing well, could it be expanded
of projects, buildings, and the fund as a whole with more capital infusions?
against those of other institutions. In cases where
you are underperforming, take the opportunity to Leverage the data on project performance collected
identify the underlying causes and learn from peer in Step 9: Track performance to answer these
institutions. questions and adjust your fund strategy (and the
associated documentation). Adjustments may include
Step 10: Optimize and improve expanding or narrowing project criteria (e.g., relaxing
short payback requirements as the most cost-effective
While some of the main benefits of a GRF are
projects are exhausted), pulling in new stakeholders
stability and longevity, it must still adapt to changing
An Introductory Guide to GRF Implementation & Management
or staff to help identify or track projects, and
conditions. Even after launching, the fund’s design
adjusting the fund’s accounting procedures.
and management should be dynamic and adaptable.
The most successful funds periodically reassess their
performance and optimize accordingly. Some funds
undertake a formal strategic review of their charter
and governance every few years. It is important to not
only address aspects of the fund that are performing
poorly, but also to reassess more foundational aspects
of the fund such as which stakeholders are involved,
how cost savings are being measured and revolved,
the fund’s mission and project criteria, and how
the fund interacts with broader campus initiatives
and goals.
One key area for monitoring and optimization is
project performance. Key questions to consider
include:
• Which types of projects are performing especially
well, both within your institution and among your
peers? Consider using these as a model for new
projects.
• Where are project applications or ideas originating
and which parts of campus could be engaged further?
• Are your original project criteria still effective
for guiding the fund managers’ decisions? They
may benefit from adjustments as opportunities are
exhausted or new ones emerge.
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