“A goal without a plan is just a wish.” Antoine de Saint-Exupery
Adding to this, direction without a budget is just a wish. It is a fact that it takes resources to get things done and that money is a critical resource.
One of the best ways to build a significant sustainability budget is building and effectively managing a revolving loan fund. Revolving loan funds are budgets that allow teams to capture savings and redeploy these savings into new projects.
Most organizations are familiar with revolving loan funds even if they don’t already have one. It’s just a fancy way to say, “reinvestment.” From my experience, these funds are anemic and underutilized. The obstacle is typically a lack of clear definition, funding terms, and, most critically, goals. Taking the time to resolve these issues can help you build a significant funding pool to execute your most important work.
Definition
Most revolving loan funds are tied to some aspect of utilities or operations. They might back into this through “environmental” sustainability or carbon mitigation since utilities and fuel consumption tend to be the bulk of most organizations’ carbon footprints. To this end, it is important to delineate the revolving loan fund from other, normal spending.
These buckets tend to be:
- Utility Spend – your typical, annual utility expenses
- Electricity
- Natural Gas
- Water, Sewer, Stormwater
- Other
- Fuel Spend – your typical, annual fuel expenses
- Gasoline
- Diesel
- Other
- Operations & Maintenance (O&M) – what your organization is spending, or should be spending, on operating and maintaining associated equipment
- Repair & Replacement (R&R)
- Risk Mitigation
- Other
In many cases, revolving loan funds are intended to be additive or opportunistic. They are often used to fund projects with identified savings but not enough associated budget.
A good strategy could be looking for incremental upgrades for scheduled asset upgrades looking at the buckets above. Efficiency is the broad term. What happens if you deploy some capital for a variable speed pump? A more fuel-efficient engine? An advanced HVAC system? Solutions like these help other departments out (allies) and demonstrate your dedication to the organizational mission, beyond sustainability.
Payback Terms
Focus on real and verifiable utility savings. One of the most frequent pitfalls is “operational savings,” which have earned sarcastic quotation marks (indistinguishable from grammatically correct quotation marks). Operational savings exist literally but rarely functionally.
Lighting is a great example. If you switch to LEDs and your operations team changes fewer bulbs and no longer replaces drivers. They save time and, therefore, money. So the savings literally exist. Functionally, these teams have other tasks that need attention, and functionally, you’re not going to pay them less because they’re spending less time changing lightbulbs. (In many cases, they will be spending more time on higher-value outcomes, making their time more valuable!)
Dubious Terms
A common trait of revolving loan funds is dubious terms. These tend to be awkward hedges like 0% interest rates or 80% recapture caps. Beyond the actual terms, what you should be hearing is distrust. Your decision-makers either don’t trust your management of the fund or trust that they understand what is really going on under the hood.
Either way, it’s on you to put in the time to better define the terms of your fund. Some easy ways to improve the outcomes of the fund are to:
- Commit to transparency
- Annual, quarterly, or monthly reports
- Sort measure by one-time and recurring savings
- Recurring measures should include a projected measure life and a plan for replacement/upgrade
- Mention operational savings but exclude them from the financial total
- Third-party measurement & verification (M&V) on large projects
Goals
Your RLF should align closely with the goals of your organization. At the very least, it should be framed in the language of your organization. It always takes me some time to understand the business model and language of the organization. The business model is just an expensive way to answer the question: How does your organization generate resources? Is it tax dollars? Grants? Paying customers? Something else?
Your RLF should sit close to this flywheel. Ideally, it finds a way to add mass and energy to the proverbial flywheel.