In the face of increasing climate risks and disasters, Community Development Financial Institutions (CDFIs) and Community Development Banks (formerly green banks) have an opportunity to drive resilience through innovative financial tools. Policy makers have elevated these local capital provider significantly in recent years but have yet to consider how they can engage the resilience/adaptation finance space. Lets change that.
Four pilots for policy makers to consider: First, a Mutual Insurance Policy Pilot would provide funding for risk mitigation projects like fireproofing homes, with insurance savings repaying the loans over time. This model would incentivize communities to take proactive steps toward reducing risks while benefiting from long-term financial savings.
Next, a Resilience Bond Pooling Pilot would allow CDFIs to bundle smaller resilience projects—such as flood barriers and stormwater management—into one larger investment package, similar to state bond banks. This approach could attract institutional capital while addressing localized infrastructure needs. A Credit Enhancement Pilot would further de-risk resilience projects by offering guarantees or reserve funds, making it easier for CDFIs to participate in large-scale initiatives. This mirrors successful models like LOCUS Impact Investing, which has used pooled guarantees to unlock community investment capital.
Lastly, the Insurance Premium Reduction Pilot links risk mitigation investments to reductions in insurance premiums, encouraging homeowners and small businesses to invest in resilient upgrades. By tying financial savings directly to disaster risk reduction, this pilot would provide immediate incentives while driving long-term community resilience. These four pilots collectively address the scaling, affordability, and risk challenges that have limited the role of CDFIs in resilience financing, paving the way for more innovative approaches.