Smart Money: Jessica Bailey of Greenworks Lending

Eva: Welcome, Jessica, we're so glad to have you. Jessica: Thank you. I'm happy to be with you today. Eva: So, I want to kick it off by touching on your background a little bit. It's mostly been in policy work to support clean energy use in the U.S. and around the world. I would love for you to tell us why you shifted your focus to real estate and the story of how you founded Greenworks Lending? Jessica: Absolutely. So you're quite right to know that my background really comes out of a policy environment and my first job out of president school was really trying to advance global and national policies that would combat climate change. And we found it very challenging to figure out ways that the global national level to politically past policies that would drive down carbon emissions. And so we ended up working at the state level in the U.S. And that was where I discovered paste financing, property assess clean energy and the policy that I now lend through was really innovated because of the lack of action at the national level. And so the policy background led me to become enamored with this policy that ultimately allows for private capital to come into the real estate sector and help building owners reduce the energy consumption of their building. Eva: Can you break that down for us when you say private capital coming in? Um, tell us a little bit more about how you raise capital to lend through the PACE program. Jessica: Sure, essentially, what the policy trainwork does at the state level is really quite simple. It allows for the same type of financing that we've used in the United States for years to finance things like sewers and sidewalks and fire district to be applied towards clean energy. So, essentially this policy says clean energy in our state, you name it. Our state allows for the public benefit assessment system to be used for clean energy. And it's a very powerful way to allow for capital providers like Greenworks Lending, my company, to invest in a secure investment environment, allowing our loans to be secured by the real estate tax assessments and paid back as a surcharge on a tax bill over 20 or 30 years. So again, it's very similar to the way we finance other public benefits in the United States, and its application towards clean energy was really the innovation that our company has been built upon. Ed: Interesting. So, it actually is…it's government funds? Jessica: You know, it's not government funds and not what makes it such a scalable solution. It is a government framework. So, it is a government rules that you can use this type of public benefit assessment collection mechanism to secure financing. But the financing comes from private company. Companies like ours bring in money from insurance companies or other institutions that have an interest in sustainability and an interest in clean energy but until PACE financing, really, they didn't have, ah, a framework that allowed for the security of the loans that they need to make. So it's the government putting in place a framework in a policy environment that allows for companies like ours to put capital to work. Eva: Got it. So the company's message over overarchingly is that saving energy is smart business. Can you tell us a little bit more about why businesses should, and real estate owners, should think about issues like clean energy and incorporating green practices into their development? Jessica: Energy consumption in buildings in the U.S. is the largest contributor to climate change in our country, and that is a motivator for many building owners. But it can't necessarily drive a business decision, and so what we've been endeavoring to do at Greenworks is sort of removing the either-or between doing something that's good for the environment and doing something that's good through your bottom line is a business owner. And the type of financing that we provide to building owners allows them to access long term, fixed rate, attractive capital to do clean energy improvements to their building, which drive down the cost, to operate that building. So what we can do is allow them to reduce their utility bills, produced the consumption of energy they use through the type of upgrades they're doing. And that could be anything from replacing their windows to swapping out there HVAC system or they're rooftop unit to put in more highly efficient equipment. The payback period on those things can be long dated, and so are financing matches the life of that equipment, allowing them to see the savings from the energy reduction and their utility bill stating, as they pay back this loan that they take out from companies like ours. So it really allows them the cash flow right away, borrowing money from us not having to go out of pocket. And so it solved what's been a huge barrier to business owners across the country when they're trying to make long term decisions about their building and haven't had a great financing way to can make sure that they're able to do what is smart from an environmental perspective, which is also smart from the bottom line of their business. Ed: And do you frequently find misalignment in those incentives between the landlords and the tenants? For example, if the tenants are on the hook for the energy bill, do the landlords care lasts about making those changes? Or is that something that you're also involved with? Her could set some light on how that works. Jessica: Yeah, that's one of the bigger barriers in tenant occupied buildings. Those in the industry call it the split incentive problem and what they're referring to you and what you're talking about here is that a building owner may not be inclined to do something that is good for the energy consumption of the building if they're not gonna see the benefit of the utility bill dropped because their tenant is paying those utility bills, the way PACE financing works, the type of financing that we provide, because it's collected on the property tax bill, a lot of owners in many of the leases that we look at are able to pass through the utility bill savings from the improved building, that they're borrowing money to do but also passed through the pro rata share of the property tax increase that repays our financing that really solved that put incentive problem, that barrier that you're describing where an owner of the building may not want to do something where they're they're feeling the pain of it but not getting any of the benefit of the improved building. Ed: Interesting. Thank you. Eva: So just pinpointing an example your financing service's help buildings to reduce emissions and become more resilient against storms. We just had a 16-mile-long tornado here in Dallas and, um well, luckily, neither Ed or I were affected by that. Driving around and seeing what that could do to buildings is just incredible and terrifying at the same time. So, I imagine that they're kind of some secondary benefits of the work that you do. But just it would be great for us to know more about who are the beneficiaries. How do you think about the beneficiaries of your work, whether they're intentional or unintentional? Jessica: So we think of ourselves working with several different stakeholder groups. But the first, in the most obvious, is the building owner to whom we make a clean energy loan, allowing them to improve their building, reduced their energy consumption or produce clean energy. So that's the most obvious beneficiary. But we also worked through a set of channel partners, many of whom are contractors, and and they are going into buildings and figuring out ways to improve their HVAC equipment or they're lighting or put solar on the roof. And these sort of intermediaries, these contractors that are doing the work or a big beneficiary of our type of financing because we're allowing them to do more projects because we're taking away that challenge that they often have, which is that a building owner doesn't necessarily have the money or want to use their money to pay for the upgrade that they're gonna do. And the third, I would say, is really the public sector. So, I mentioned our company really operates through the public private partnership, which is the PACE policy, and ultimately, what the public sector is trying to do by passing these policies is to create a kind of environment in which their businesses can access attractive financing. And so we're allowing them to meet some economic development goals that they might have well, also very obviously helping that need some environmental commitments that they may have it at the state and the local level. So we really think of it is the building owners, contractors and then, in a large degree, the public sector. Ed: Do the utilities get involved in your process at all? Jessica: Well, they sure do, because most states have utility rebate programs where if you're going into your building and you're replacing your lighting or you're putting in a new, more highly efficient system, um, the utilities will provide you incentive to do that, either in the form of a rebate up front or over time, as the case may be with solar, where they actually will often times pay you to bring solar to help them off that some of their renewable energy commitment. And so most of the projects that we have financed have been done with utility incentive programs being involved with that they also become really interesting partners for us if we're thinking about ways to make sure that the type of financing we offer is made known to building owners because if you are the owner of a large building and you're thinking of doing a an energy upgrade or trying to bring your building into a kind of the next generation if you've got an older building, oftentimes the first call you make is to your utility company and you're you've got a customer service representative there that could help walk you through the rebates and incentives you might be eligible for. And they become great lead sources for us because they will let the building owner know that if they're thinking of doing some upgrades to their buildings, they may want to consider Greenworks financing to help them pay for it. Eva: Greenworks has been around for five years. Tell us a little bit more about the scale on growth of the company. How many borrows or borrowers are you working with? How many cities are you operating in? Jessica: So Greenworks have founded in 2015 and we really were born out of a state program in Connecticut, which is obviously a very small state, and the reason we decided to create Greenworks was because we were starting to see what an outsized impact we were having in Connecticut and felt fairly committed and and bullish that we would be able to have similar impact around the country. So in 2015 we have the simple goal of trying to do what we had done in Connecticut, in a handful of states around the country that had the same type of policy environment that Connecticut has, and in that first year article was really simple. Just try and get a loan closed outside the state of Connecticut were successful in doing that. The second year, our aspirations grew and we wanted to see you know how many other states we could add and how many other types of building owners we could go after. So, five years in, we're operating now in 20 states around the country we had financed gosh, probably close to 500 projects across the country. Everything from small HVAC replacements to really large renovations or or new construction that integrates sustainable design. And um, you know, I think we're quite proud of the impact we've had on greenhouse gas emissions as we've been able to scale our mission and also the fact that we're able to offer commercial real estate owners and developers a really attractive way to finance clean energy within their building. Eva: What I love about your company is that social impact is truly at the center of your business model. Um, what what for you have been kind of the most profound effects of that and what has motivated you to run your business? Jessica: It was really funny. I I hardly think of myself as a private detective person because my background was first in the nonprofit sector and then the public sector. But I think what really led me into the private sector was the recognition that in order to scale the types of solutions that we're gonna need when it comes to combating climate change, you really have to figure out a way to unlock private capital. There just simply isn't enough public sector or nonprofit resources out there to get the massive scale of the energy transformation in the country that we're gonna need to see. And so it really, as I mentioned, started with a kind of policy idea. It moved into a public sector program and now I think what motivates me is really seeing the fact that we haven't had to make choices between doing what is smart from a company perspective and growing our business and doing what feels right from a mission perspective. And we've been able to keep both of those things pretty court to what we've been doing since we started five years ago. Eva: I wanted to touch a little bit on perhaps a story of ah borrower that was not convinced about making changes. Um, making greener choices with their building uh, is there anything that you can kind of highlight without obviously naming names for us and how you convinced them to come on as a borrower. Jessica: Sure, I think that the most obvious examples I can think of are some of the building owners that have ended up putting solar on their route. And oftentimes these owners are motivated not necessarily by clean energy or sustainability goals, but really by kind of cash flow. Right? They see their jobs as returning capital to investors or producing revenue for there for their clients. And what we've seen is the fact that Greenworks allows for a building owner to not have to go out of pocket at all and to borrow money from us to do improvements that ultimately improve the cashflow of the building has been really the reason a lot of the owners that we've seen moved to solar have done so and that we will talk the owners regularly. You know, I like the idea of solar, but listen, if I'm gonna be spending money on anything, it's gonna be the by the building next door or kind of launched a new product line, hire more people or by a new fleet of trucks or whatever is sort of core to their business and clean energy is often not core to their business, and, frankly, it shouldn't core to their business. It should be something that is made easier for them to do because of good policy framework and good financing options. And so I've been really proud of the fact that our company has needed a no brainer for a lot of these building owners to make the decision to go solar or to put in a building management system back to dramatically reduce the consumption of a building. Not because these owners were thinking about polar bears or saving the world, but really because they recognize it was both a smart business decision as well as something that was good for the environment. Ed: That's so interesting, especially when you get to those automated building control systems, which there's just so many old ones out there. And you know, when you're looking to put in place a some kind of maybe peak demand management solution or something like that, it's just can't interface with the back net standards or any of the other standards could be really challenging for those companies to to buy those units. Do you do automated building systems? Jessica: We do, absolutely. So if you've got a building, particularly one with a whole bunch of different tenants, that they have different needs or different demands within their units um, it becomes really important. And the savings numbers on what these types of systems could do for large office buildings is really dramatic. But it is expensive to get them installed. And so if you can solve that upfront challenge that an owner has about whether or not to do it by providing them with attractive financing, the kind of even short term payback taht they see is quite dramatic. Ed: Yeah, that's that's super interesting. I'm an investor in another company called Demand Que based out of Boston and we do software software as a service based peak energy demand, and we're always running into the to the building management system or the BAS I guess they call it the building automation system. Yea, we’re always running into that as an obstacle, and it's interesting. I'd never considered this possibility before, so maybe we should hook up after this call. Jessica: Absolutely. Eva: And I think just Hi. It's great to hear that because you really highlight well, the win win, because energy use is the single largest operating expense for commercial office buildings. and I think when you align your offering with with them saving money, it's as you said, it's a no brainer. Jessica: That's right. I think the the idea that most building owners have is that they know they ought to do something. They knew that there are probably quote unquote dollar bill lying on the floor when it comes to switching out their lights or to replacing windows, but they just don't have the kind of short term ability to make a large capital outlay to do that improvement, especially when the payback is gonna be, you know, sometimes 7 10 even 15 years with some of the larger equipment. And so when you got a CFO whose job it is to think of kind of a three and five year time horizon on return on capital, it's almost impossible for them to make the decision to do something that is kind of medium and long term smart, but perhaps short term painful. And that's what Greenworks is really designed to do, to take out that dichotomy of having to make a decision that is short term smart and long term smart and medium smart. And I think that the availability of our type of financing has allowed owners to make what, what ends up feeling like a no brainer decision by borrowing money from us to invest in our buildings and seeing the short, medium, and long term benefits. Eva: Yeah, I'd like to switch gears a little bit and point out that in the finance space, it's rare to see two female co-founders. Um, I know you've created also ah, a culture that encourages diversity. Um, and when you're thinking about your company culture as a CEO how have you created that balance? Jessica: It's a great question. It's one we we think about a lot without having the ability to answer it very well. I think in some ways we've been really fortunate and having attracted as super talented and mission driven staff that comes to this work wanting to work between what is oftentimes a personal passion around clean energy or sustainability, but also ah, sort of business in sync and wanting to do something with their professional lives that is gonna create a kind of success in and create productivity along the way. And I think we've been sitting at that nexus in a way that’s allowed us to bring in some really high performing people within our company. We do have a lot of women. We get kind of joked about the kind of quote unquote Greenworks girls and there are a lot of us women in the company and it wasn't frankly by design. I think it had to do a lot with the facts about my partner Aly and I are both women and we started it and there are a whole bunch of theories that if you have enough women in a critical mass, it becomes easier to get more and more of it. So I think we've we've benefited from the fact that Aly and I have made it feel, you know, certainly like there is no ceiling on what women can do in our company as there are not being in any company. But but it's allowed us to bring a lot of the gender diversity that we've seen, and I'm really excited that and continuing to grow it. We've also got a relatively young teams and I think with that comes a whole bunch of energy and fresh ideas and kind of new ways as both working and thinking that has allowed us to be really nimble and kind of keep up with a fast growth of pace in this industry and stay at the forefront of it. Ed: What are some other aspects of your company culture that you're most proud of? Jessica: So we do our best to try and embrace a sort of, culture of constant improvement. So when you're ah young company, there are no rules written when you start and we brought on ah young man last week and he was lamenting how he didn't know anything about PACE financing. And I told him, “ Listen, we've never hired anyone in this company who ever knew anything about PACE financing before they started here.” And so the fact that we are a new company in a new industry, doing your things, I think has allowed us to have that kind of innovative culture, that people aren't afraid to make mistakes or at least, I hope they're not afraid to make mistakes because that's really but help us learn. We've got a culture that encourages us to look for ways to do what we do better and smarter. One of the hard things about kind of the mission driveness Greenworks is that people work really hard and we're you know, we're working more hours I think than most of us would like and so in order to have the type of impact we won't both, both in terms of how our business is performing, but also in terms of how much we're contributing to climate change pollution we've got it constantly be looking for ways to do what we do more efficiently and more effectively until we got a whole culture of folks that are constantly bringing out new ideas on how to how to, you know, do do deals more quickly or cut out steps or inject automation or think through kind of technological advances that we might be able to bring into our company to help us work more effectively across the partner. And that’s been really fun to see. Eva: Have… there's a typical tension when, when companies are purpose driven and that is as they grow, it's harder to keep hold of the social impact at the surface level it seems like what you do at Greenworks has, Ah, very close tie to the social impact of the business and and that's at the core of your company but is there any nuance or are there any ways that you felt that it's been hard to grow and scale that the business and kind of keep hold of your original vision? Jessica: So I realized about six months ago that I personally wasn't doing as effective job as I needed to in letting newer people that were joining the team understand our story of the company and why we widely found it is and what we're doing and where we see ourselves going and I think it was a wakeup call to me when one of the newer people came in and said, “You know, I've never I've never really heard you tell the story of the why of, you know why Greenworks? Why do you think this type of finance has changed the changed the world?” And I think it was a big wake up call to me when we got to 30 35 people. You do start to forget that the newer people coming into the company that weren't kind of present at the creation might not know that and so what we try and do more often now, certainly with all of the new people that are coming in is sit down my partner and I that tell them the story of you know, what we were what we were trying to accomplish, where we think we've made real progress, where where we want to be heading with this and try and make sure that that mission and the goal of the company's stays central. I think it's really easy, as you know, to let that slide and frankly, as somebody who is busier than I would like to be it. It's really easy for me to kind of take a pause. I'm thinking about that and just sort of crunch through the days without pulling up and recognizing that actually, one of my one of my jobs and one of things I ought to be doing is making sure that that mission stays central and sort of core to both who we’re bringing in and how we're bringing them into the kind of family of the company here. So we're trying to do that a bit better now but I do think what we went from kind of 12 people to the 30 people over a course of a couple of months way lost a bit of it, and so we're sort of regaining that putting on that right now. Ed: So you have about 30 people now? Jessica: Actually, we're about 36 people right now spread across a couple offices. Ed: And how big do you expect to get in the next year or so? Jessica: Well, in the last year, So I said, Well, we'll certainly be adding a few people of our as our scale continues to move around the country. I think the industry is still very much in its early stages. I think we're probably like the toddler age and in terms of the industry, when you think about how much there is to do by way of upgrading existing buildings and bringing our type of financing into new developments, there is really a very, very large addressable market, and our goal is to be a financing solution that's available to every building owner who wants to consider it. And so that suggests quite a bit of scale with it. In terms of hiring, we've almost doubled in size in the last 12 months. I don't expect us to do that exactly again in the next Fall but certainly will be will be bringing on new team members we’re actually recruiting a few folks right now, if anyone is interested, check out our Web page. We're looking for some talented people to join us, but our scales, really we think, measured in the number of buildings that were financing the amount of greenhouse gas emissions we're reducing, the amount of clean energy we’re consuming. And so I think our our contribution to that is still smaller than I would like, so I'm very eager to fear continue to grow very quickly. Ed: That's so interesting as we think about the growth in in staff and company culture. I know in my last company, when we went from 30 to 100 people, there was a big shift in the way that I had to communicate our core values and our mission to people. It was much more formal and much more written, and it was on posters and it didn't feel like that authentic coming from my heart that, you know, we used to do when when we just had a small group of people and we'd rally around and just almost over over a dinner you could you could share the company's values. So that's that's an exciting period you've got ahead of you. Jessica: Yeah, Ed: Yeah, Jessica: it does. Ed: You Jessica: sort of the shorthand that you've used to build the company from, You know, two people 15 people needs to become long handed, and you spend a lot of time over the last couple of months trying to document how we do things. That was sort of this tribal knowledge about you know what we do and how we do it. And even though why we do it that it felt like we all knew for a while. And then you you kind of get newer people in you realize it doesn't transmit as well in the short hand. And so there are structures that, thankfully, we've got some talented people helping us put in place here and I think we're doing all right by way of turning from 15 to 30 to 60. But but certainly there's bumps along the way, and it does change. But I think that change and sort of the close knit family feel of a small company is replaced by the excitement of feeling the increase in impact on the fact that what you're doing actually have caught on in a way, that growth is almost inevitable. Eva: That's really exciting as a leader of a purpose driven company that is on ah, exciting growth trajectory, is there any advice that you would give to aspiring leaders that want to incorporate purpose into their businesses? Jessica: I never feel like I'm equipped to give anyone advice because it seems like what you know what works for one might not work for another, but I will say it is. It's stressful to try and create something that needs to both have a business sense to it and actually make money and also keep mission and purpose in its core. And I think trying to figure out ways, uh, kind of have fun along the way and to surround yourself with people that you enjoy working with and you trust that for me has been the reason that this has worked the way it has my partner and I were really lucky in a lot of ways with the people that came in to help us build the ship is we've been sailing in here and the kind of ability, the laugh of things that could go wrong, even if you're trying to fix them and and feel, though there is a sense that everyone got each other's back and we're kind of all accountable to one another I think has helped a lot to kind of keep keep us moving forward, and we need some of what can be a really stressful and difficult thing to do, which is to start a business and start a business that isn't just about printing money, but about trying to do something that's a little bit bigger than that. Ed: Well, I have one last question. I I was I was really interesting. I thought was interesting this question about the policy perspective and, um, like what challenges remain to make this policy more more prevalent in other states? Is it do you think that's an automatic, or is there something people should be doing to activate this policy in in their local areas? And which ones do you think are the most important sort of on the list for the country? Jessica: So PACE policy is policy that's been passed in 38 states around the country. So we've had some really positive tailwind on the type of policy, and in part it's because it's sort of splits itself between being a policy that Democrats can get behind because it's about clean energy and a policy that Republicans can get themselves behind because it's about private enterprise and sort of, commercial activity. And so we've been able to get this policy passed in Blue States and Red States and Purples States and I think we've we've been excited to see how fast this has spread around the country, but there are some parts of the country that don't have it. There's some parts of the Southeast where I would love to be able to offer our financing, like the Carolinas and Tennessee on there's a couple of places, uh, out west that haven't got PACE policy. The best thing to do would be to go to the PACE Nation website that is the nonprofit industry association that advances PACE policies across the country. Full disclosure - I'm on the board, but they are a great organization. And if you're interested in this type of policy and this type of financing, their are a great place to figure out what's available. And if there isn't PACE policy available, there are a great advocate to getting it done. Ed: Great. That's awesome. Eva: Yeah, and my my close friend friend Siegel, Who's at the Impact Investing Alliance likes to say that impact investing sales across the aisle, which I think you illustrated really well here. Um, it isn't not. It's on a non-divisive topic as well. Jessica: Absolutely. Eva: Well, we're sitting here overlooking downtown Dallas. I look forward to a time when all of these buildings are using greener strategies and working with you hopefully and thank you once again, Jessica, for your time today. It's been a pleasure. Jessica: Thank you guys. Ed: Thank you so much. It's been great. Eva: Once again, it's clear that a business leader with good intentions can create an impressive social, environmental and ethical impact. There is always a way to put meaning behind the mission of a company, and we can all make a difference. Ed: You've taken the first step by listening to the Beyond Capital Podcast. Thanks for joining us. Don't forget to rate and review. And if you haven't yet, subscribe on your favorite Podcast platform. For more information, go to beyondcapitalpodcast.com. You can follow me on Twitter at @EAStevens. Eva: And follow me on Instagram at @ConsciousInvestor. Until next time.