The ELFA Convention had to quickly change its venue due to a climate catastrophe on the western coast of Florida—Hurricane Ian. Ironically, while Ian was forming, a panel of speakers was preparing to present on climate finance and usher in a new ELFA interest group.

Climate finance is a rapidly developing market – a “massive opportunity for the industry,” according to the convention speakers in Orlando, FL. On Oct. 11, they presented compelling facts and figures for consideration. Despite it being the last day and last session of the annual event, most seats were taken.

Patricia Voorhees of The Alta Group, a global advisory in equipment finance, was on the panel and led the first meeting of the Climate Finance Interest Group that launched right after the session. She is now the Chair of this newly formed group, which already has 25 participants.

During the panel discussion, she summarized the extensive ESG Study (environmental, social and governance) that The Alta Group produced in 2022 for the Equipment Leasing & Finance Foundation. She pointed to six key findings of the study that included, for example, the need for standards and disclosure frameworks, the level of the capital provider interest and the unique risks.

Voorhees said the industry has always been creative and “we could create the solutions needed.”

Climate financing was described by the panel as the financing of equipment, services or projects that reduce carbon emissions or mitigate the climate change due to excessive CO2 emissions and other greenhouse gases.

Also in October, the ELFA magazine reported this: “As the world warms largely because of carbon output, hundreds of nations around the globe are committing to cutting their production and emissions of greenhouse gases. The U.S. is one of them, having rejoined the Paris Agreement in 2021. And the opportunities for equipment finance companies to capitalize on this trend are nothing short of mind-boggling,” wrote Susan Hodges, the author.

During the panel session, Razi Amin, a partner at Aspen Capital Solutions LLC, a climate finance consulting firm, said the market is currently inefficient. “We have to create a beautiful investor experience,” he said, noting it will reduce inefficiencies in climate finance.

Also presenting in this session were Jeff Elliott of Huntington Equipment Finance, Scott Thacker of Ivory Consulting (moderator), Joshua Patton of Verdant Commercial Capital, and Voorhees of Alta.

In opening the session, Thacker urged the audience to ponder how the industry could embrace this new asset class and what resources may be needed. He also provided this global backdrop:

In 2021, the Glasgow Financial Alliance for Net Zero formed with 430 financial institution members collectively managing over $113T in assets across 45 countries, committed to investing in climate-enhancing solutions.

Voorhees suggested this could be the “biggest opportunity of our lifetime” and that there is a “mismatch in supply and demand.” She noted that $16 billion today is invested in research and development in this market.

One presentation slide showed why the climate market potential is getting people’s attention—$1.4 trillion annually and $4 trillion in debt were cited as total annual capital investments needed by 2030.

Hugh Swandel, CEO of Meridian OneCap, was among those who remained after the session to join the new Climate Finance Interest Group, saying his company is very interested as is the Canadian Finance and Leasing Association, which he serves as a board member and chairman of the association’s research committee.  

He also suggested that the climate equipment category could be added to the ELFA’s annual Survey of Equipment Finance Activity (SEFA) report that tracks the growth of various industry asset sectors.

Amin said, “We have to focus on the commercial side and depoliticize it. This is just climate equipment finance.”

Andy Fishburn, the ELFA’s Vice President of Federal Government Relations, said the primary mission will be to promote economic opportunities for association members. It also will facilitate meaningful events and foster a group of experts to support the ELFA with policy issues, he added. “The association will support what’s good for business.”

Others who joined the interest group suggested that climate finance should be studied by the industry’s tax and credit professionals and that the Emerging Talent Group in ELFA might consider this a topic because it attracts next-generation employees.

The employee attraction to ESG was noted by Voorhees during her panel remarks. It also was mentioned in the ELFA magazine article on climate finance.

Amin pointed to various sectors of climate finance including equipment for energy efficiency, sustainable agriculture and transport, renewables and climate resilience, and conservation of biodiversity.

He said risks from new types of technology, new models and longer tenor can be mitigated by leveraging the capital markets.

In the panel session, Elliott of Huntington Equipment Finance reported that the Biden administration’s infrastructure proposal would direct $1.1 trillion to climate initiatives and that the federal Inflation Reduction Act of 2022 includes some climate-related provisions, as well. State policies also will have an effect.

Elliott said wind and solar generation are already matured markets; currently, the growing opportunities with “increased financial activity” are battery storage, electric vehicle (EV) charging units and EVs, microgrids, biofuels and power transmission grids. Nascent technologies were said to be involved in carbon capture, utilization, and storage; green hydrogen; and the “voluntary carbon market.”

Elliott said there also will be real estate opportunities because “buildings are the biggest carbon emitters.”

Patton addressed opportunities and structures in energy-efficient equipment finance. He said credit enhancements are available as well as commercial rebates and government grants. The focus, he said, is on equipment that saves energy and lowers a customer’s costs, such as LED lighting, HVAC, renewables and EV charging equipment.

The vendor finance company, in working with equipment contractors, uses energy-savings agreements or pay-per-performance business models, as well as other lesser-known structures not based on residual values and unique to this asset class.

In the interest group meeting, Voorhees said best-practice sharing, advocacy and education are what members say they want from the association, per the research done for the ESG study she referenced. “There is work to be done to figure out the risk in these new business models by the various segments of climate equipment and to explore the interests of investors and capital markets.”

The next meeting will be in the first quarter 2023, and people interested can still join the working group by contacting Fishburn, the ELFA staff liaison for the Climate Finance Interest Group.