Sustainable Investments that Foundations can make for People and the Planet

The climate emergency is driving innovation that philanthropy can fund, and is funding, with foundation investment capital. With the lived-experience of forest fires, major hurricanes, coastal flooding and other recent, tangible consequences of a rapidly warming planet, the urgency to deploy more capital to find solutions is activating more immediate action. The disproportionate impact that environmental injustice has on communities of color and low-income communities in the United States and around the world expands the universe of foundations seeking to change how they deploy capital.

Many foundations are responding by reaching beyond grantmaking and reconsidering their investments in traditional asset classes, creating new models and collaborating, all while keeping the future of planet Earth and the people who populate it as their central missions.

Foundations also have a unique ability to provide capital to ramp up new technologies, catapult “moonshot” ideas to fruition, influence corporate behavior and activate other funders to participate in projects that might have otherwise been considered too risky for business or government, accountable to a different set of external stakeholders.

With some 100,000 private foundations in the U.S., just a small percentage are the size of the Bill and Melinda Gates Foundation. No matter the size of the foundation, all of them can combine grantmaking and sustainable investing now for immediate benefits to climate.

Reconsidering ESG

GreenMoney Journal has covered the merits of sustainable and Environmental, Social and Governance (ESG) portfolios for several decades. Foundations that align their endowments to climate missions are demonstrating the financial benefits. Rockefeller Brothers Fund (RBF) just underscored that point, when in May 2020 it detailed how its investment returns beat market benchmarks since divesting from fossil fuels five years ago. The case study Investing in Our Mission shows the RBF posted an average annual net return of 7.76 percent over the five-year period that ended December 31, 2019. Over the same period, an index portfolio made up of 70 percent stocks and 30 percent bonds—including coal, oil, and gas holdings—returned 6.71 percent annually. With more than $1.22 Billion in assets, RBF’s experience provides a proof that gives other foundations the encouragement to model.

Look Close to Home

Foundations are not limited to aligning their endowments to an ESG lens. The old adage, think global and act local has taken on a new moniker: place-based impact investing. Installing renewable energy generators like solar and wind projects are already proven to ease carbon consumption while providing a financial return to its investors in specific locations, both urban and rural parts of the country. Foundations can help amplify those outcomes by investing in building an ecosystem of stakeholders, knowledge-holders and investors.

Community Development Financial Institutions (CDFIs) are reliable and effective intermediaries for channeling mission-focused fixed income allocations to specific places relieving foundations of the work of sourcing projects, conducting due diligence and monitoring performance. CDFI’s are known for lending to local environmental projects that struggle with securing conventional bank financing, often because of the profile of the borrower. CDFIs have knowledge of the local nuances relating to natural resources, policy and cultural considerations that make foundation investments better perform. For instance, the Maine-based CDFI CEI deploys philanthropic capital toward lowering the cost of municipal solar projects in non-wealthy rural communities.

Collaborate for Innovation

The climate emergency is daunting and leaves many boards of directors overwhelmed with evaluating best paths to make the greatest, fastest impact. Collaboration helps to amplify a single foundation’s investment and encourage others to participate, especially when it comes to new ideas.

For instance, there is an enormous pipeline of exciting new technology designed to cut carbon emissions in development across the U.S., much of it happening at college campuses. From designing floating offshore wind turbines to capturing storage from the air, these dramatic projects are at risk of never leaving the laboratory because the path to commercialization is expensive and risky. That is the formula for what’s known as the “valley of death,” – the period where great ideas fail to take off due to lack of financial support.

Philanthropic capital helps bridge that gap. Prime Coalition is a public charity that partners with mission-aligned investors to support extraordinary companies that combat climate change, have a high likelihood of achieving commercial success, and would otherwise have a difficult time raising adequate financial support to scale. This spring Prime announced a $50 million impact fund to support such high-risk, high-reward climate ventures with support from family offices, corporations, and foundations such as the Sierra Club Foundation and the David and Lucile Packard Foundation.

Influence Corporate Behavior

As share owners of public companies foundations can behave as active owners, using their voices and proxy to help change corporate behavior on climate change – from pollution emission caps to limiting use of certain chemicals and pesticides, to influencing the influencers, as in voting for more women and more people of color to serve on corporate boards. Even though most shareholder proposals are advisory and don’t require companies to respond, companies will react to pressure if proposals are highly publicized or receive a majority vote. One victory for this kind of effort occurred this summer, 2020, when JP Morgan Chase agreed to disclose how much its loans and investments contribute to greenhouse gas emissions.

No Time to Wait

Foundations trustees and boards of directors have the discretion to mobilize quickly. During the COVID pandemic and racial justice reckoning of 2020, plenty of foundations called emergency meetings to re-direct capital to make an immediate impact. The results of this will reverberate over time as foundations keep and grow their commitments.

RESOURCES

There is myriad support available to foundations seeking to put more investment capital to work on climate. Here are some of them:

Mission Investors Exchange is the leading impact investing network for foundations dedicated to deploying capital for social and environmental change. Members connect for best practices, new investment opportunities, deal partnerships, and innovations in impact investing.

Rockefeller Philanthropy Advisors released “Impact Investing Handbook: An Implementation Guide for Practitioners” a follow up to its pioneering first release more than a decade ago. This resource meets funders where they are in their impact investing journeys and provides comprehensive frameworks and actionable tools to help asset owners better align their investments with their values.

The Global Impact Investing Network builds critical infrastructure and supports activities, education, and research that help accelerate the development of a coherent impact investing industry.

As You Sow is a nonprofit organization that promotes environmental and social corporate responsibility through shareholder advocacy, coalition building and innovative legal strategies.

Nathan Cummings Foundation guide Changing Corporate Behavior through Shareholder Activism is based on its firsthand experience.

 

Article by Christen Graham, Founder and President of Giving Strong, Inc. Christen brought together her head and her heart when she founded Giving Strong. In previous tenures as a journalist, public relations professional and executive, she intentionally incorporated social impact into her work. Christen has worked with pioneers of the Corporate Social Responsibility movement, leading academic institutions, modern foundations and influential media. She has given voice to underserved people and built programs that foster opportunity. Christen advocates for immigrants by serving on the board of ProsperityME, activates women to be impact investors by serving on the steering committee of Invest for Better, and mentors young people as a Fresh Air Fund host. She is a Tufts University graduate.