The Cut Carbon Note, created by impact investment firm Calvert Impact, is a groundbreaking investment product that allows individuals to invest in social and climate justice projects. Working in collaboration with law firm Morgan Lewis, Calvert developed an asset-backed securitized instrument to provide financing for new buildings and major retrofits. The Cut Carbon Note leverages the Commercial Property Assessed Clean Energy (C-PACE) program, which provides financing for green upgrades in commercial properties. With the goal of broadening the investor base, Calvert wanted to make it accessible to more people, including individual investors. The Cut Carbon Note was launched in October 2023 with an issuance of around $30 million and over 70 investors participating.
The partnership between Calvert Impact and Morgan Lewis was recently recognized with the Grunin Prize for Law and Social Entrepreneurship, which acknowledges lawyers’ involvement in promoting sustainability and human development through business efforts. The development of the Cut Carbon Note involved navigating through a complex and esoteric asset class, working with rating agencies, distributors, and complying with state-specific securities regulations. Despite the challenges, the launch of the Cut Carbon Note was successful, attracting investors such as millennials, nonprofits, institutional green buyers, and financial advisory firms.
The Cut Carbon Note aims to remove barriers for property developers by providing financing options for projects that meet new low-carbon building standards for efficiency improvements. By working with organizations like Pace Equity and the New Buildings Institute, Calvert ensures that the financed buildings are enrolled in utility monitoring to track energy efficiencies created. Investors receive impact reporting twice a year, allowing them to see the positive environmental and financial impacts of their investments. One of the projects financed through the Cut Carbon Note was the Coliseum in Minneapolis, which was turned into a hub for Black entrepreneurship and saw increased energy efficiency following renovations.
Calvert’s goal for future issuances of the Cut Carbon Note is to reach a total of $400 million over the next two years. The ultimate vision is to attract more players to the market and expand the impact investing opportunities in the green building sector. Calvert sees the potential for the Cut Carbon Note to become a multi-billion-dollar opportunity and is optimistic about the growth of impact investing in the coming years. By leveraging legal expertise and innovative financial instruments, organizations like Calvert and Morgan Lewis are driving positive change in the world of impact investment and paving the way for a more sustainable and equitable future.