Leading philanthropic foundations can create climate “tipping point”

COMMENT: Jeremy Leggett from Carbon Tracker outlines five ways philanthropists can use wallets to curb carbon emissions

(Pic: Saskatoon/Flickr)

(Pic: Saskatoon/Flickr)

By Jeremy Leggett

In the largest and most international declaration ever published by environmentalists, 160 winners of environmental prizes from 46 countries, have today called on the world’s foundations to use their financial power to fight global warming. 

In an appeal published in the International New York Times they call on foundations and philanthropists to dig into their endowments to create a tipping point in climate action – “to trigger a survival reflex in society.”

The world’s philanthropic foundations own endowments worth hundreds of billions of dollars.

They invest those endowments to generate returns from which they can pay out grants or make loans. They use these to fund a multitude of  causes, but as things stand only a minority tackle climate change, either as part of their mission or as their major focus.

Yet climate change is the issue that is arguably the single biggest threat to civilization.

We are on course for 4C to 6C of global warming, with devastating consequences for the whole world. The environmentalists say they are “terrified that we will lose our ability to feed ourselves, run out of potable water, increase the scope for war, and cause the very fabric of civilization to crash.”

Global warming on this scale threatens to damage or destroy all the good work done by foundations and throw into chaos the financial markets where most of their endowments are invested.

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A small shift in the collective focus of foundations, and/or an acceleration by foundations already working on climate change, could make a big difference.

If they broadened and deepened their activities in line with the magnitude of the threat, this could well create space for a tipping point in climate action of all kinds.

The 160 environmental prize winners remind foundations and philanthropists that the Paris Climate Summit “may be the last chance to agree a treaty capable of saving civilization,” and say foundations can materially help the negotiators of that treaty by taking action now.

The European Environment Foundation, which organised the call to action, is writing to foundations setting out five ways in which they can help.

The first is to invest in zero-or-low-carbon climate-solution companies and projects, as debt and/or equity, ideally relaxing the interest rates, hurdle rates and exit timeframes usually sought.

The second, relatedly, is to divest from fossil fuels, and to reinvest in clean energy companies.

The third is to stay invested in fossil-fuel companies, and campaign to put shareholder pressure to end spending on exploration for and development of new reserves.

The fourth option is to accelerate zero-or-low-carbon markets, new and embryonic, by giving grants – on a scale they have never before – to the multiplicity of projects that can make a difference across the greenhouse-gas emissions spectrum, including new projects of the foundations’ own design, based on the vast collective and individual experience of they and their networks.

If foundations commit to clean-energy investment, carbon-energy divestment and reinvestment in numbers, there probably wouldn’t be enough clean-energy targets to go round. Grants would be needed to create those targets.

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How might this work? Carbon Tracker is an example of a foundation-led initiative that has a chance of impacting the climate negotiations positively.

The Carbon Tracker Initiative was an informal group of financial experts that was convened in 2011 into an international think tank as a result of foundation pressure and seed funding.

The group argues that the two degrees global-warming danger-ceiling means that most fossil fuel reserves will have to stay in the ground, unburned, and that this “carbon bubble” poses risks that are not recognised in the financial system, a situation that means investors contemplating further investment in fossil-fuel companies are in danger of wasting their money.

Last year, as a result of Carbon Tracker’s foundation-funded work, investors started putting pressure on fossil-fuel companies to do other things with their capital expenditures than spend them on expanding their share of reserves that might prove unburnable.

This work, and that of other foundation-funded initiatives like 350.org, persuaded financial institutions, cities and universities to withdraw investments from fossil fuels completely in 2013 and 2014.

If these trends continue in the rest of 2014 and 2015 – as they look very much like doing –  then negotiators may sit down in Paris with a sense that “the markets are already moving” in their direction of travel – i.e. towards significantly less burning of fossil fuels in the future – so making their task of negotiating meaningful targets and timetables easier.

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The fifth option for foundations is to use their investor power to build a new pool of corporate capital in the world.

Newly-created and existing companies benefiting from the accelerated flow of grants, debt, and equity investments by foundations could be asked to agree to do two vital things.

First they would donate 5% of their pre-tax profits to social enterprises with climate-stability and – relatedly – development missions. Second they would agree to repay any grants awarded, from profits, over time.

This would enable both the creation of a second new, growing and potentially enormous pool of capital, in perpetuity, for social good extending well beyond ensuring climate stability.

It would also enable foundations to have a way of rebuilding their endowments, other than from interest and returns on equity, from successful companies and projects in the renaissance they would be helping create in the world.

Jeremy Leggett is chairman of Carbon Tracker and coordinated “An appeal to the world’s foundations and philanthropists by the world’s environmental prize winners”, which was published in the International New York Times on September 15, He has been a campaigner on climate change for 25 years, and has used social entrepreneurship as a campaign tool for the last 15 of them. www.jeremyleggett.net

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