5 ways to redefine philanthropy’s role in the fight against climate change

Aug 20, 2024

Philanthropy has a number of means at its disposal to promote just and equitable climate action. Image: Getty Images/iStockphoto

Kathleen Simpson

Chief Executive Officer, The Russell Family Foundation

Investment capital, as well as grant-making, is a crucial tool for philanthropic organizations looking to further their impact.
A growing number of foundations are beginning to explore these expanded possibilities.
Sharing knowledge, increasing transparency and building networks will help catalyze a shift towards more systemic climate solutions.

When it comes to the role of philanthropy in the fight against climate change, grant-making features front and centre. Grants can be nimble and risk-tolerant in spurring climate solutions, as highlighted in a recent report by the World Economic Forum. But much more remains to be done; for example, only 2% of philanthropic giving is directed toward climate mitigation, falling short of the scale required for the global crisis. New World Economic Forum research highlights opportunities for exploring partnerships between philanthropy, private and public sectors that can create a positive domino effect, rapidly cut emissions, and ensure a just transition.

But there are also a number of less-explored levers that foundations can pull in the fight against climate change, including putting their investment capital to work. It’s worth noting here that there has been some progress within the philanthropic community with the movement to divest away from fossil fuels, but it’s not universal. There has also been some engagement from the community with the broader net-zero investment trend, as represented by initiatives like the UN-convened Net Zero Asset Owner Alliance (NZAOA), but it’s been limited. No doubt this is, in part, because there is no playbook guiding foundations on aligning investments with climate goals; it may be easy to assume that financial returns on investments could be compromised.

The good news is that things are starting to change. A small but growing group of foundations is beginning to explore all available levers to help achieve net-zero, guided by a commitment to equitable climate action and its urgency, including the Sierra Club Foundation, David Rockefeller Fund, Jessie Smith Noyes Foundation, the McConnell Foundation, and the McKnight Foundation. These organizations are participating in an active dialogue on how to redefine the role of philanthropy in the fight against climate change, including through a series of convenings on the topic.

From these discussions, five key insights have emerged:

We can focus on real impact. Empowering impact can be a driving force, not just an additional goal beyond return on investment. Philanthropic organizations should make mission-driven decisions by asking not only how to minimize emissions associated with our investments, but also how our investments can actually achieve real-world emissions reductions. Using endowments to finance climate solutions allows smaller organizations to bring more power to their efforts, extending beyond what their grant-making dollars can achieve.
We can harness our collective strength. Together, foundations can motivate others to invest in equitable climate action. Smaller organizations, with the support of investment committees and external investment advisor firms, can demonstrate that size is not prohibitive. There are many forms of capital beyond just financial that can amplify the impact of individual foundations, including network capital. Mobilizing our networks toward shared goals has real power for addressing complex problems and developing solutions at the systems level. Financially, collective efforts can shift more capital toward climate solutions.
We can promote equitable action. Philanthropy has a critical role in supporting climate justice and achieving climate goals alongside diversity, equity and inclusion goals. Aligning investments to ensure real-world emissions reductions and incorporating the principles of a just transition are challenging, but possible. And, what’s more, many have found that portfolios that divest from fossil fuels and focus on equitable climate action can outperform various benchmarks over time, across asset classes.
We can share our learnings. The philanthropic community can learn together: highlighting thorny issues, balancing grant-making and investments, and engaging asset managers. Shifting trillions of dollars involves learning from each other and taking collective action. As a first step, we can help each other with approaches for calculating the baseline for the financed emissions in our portfolios. This helps us understand both the impact and need for climate solutions. The real trick is just getting started, and then learning along the way and staying flexible.
And finally, we can increase transparency. Foundations can increase transparency in financing climate solutions; showing where and how finance is directed can help others learn. The sector often seems driven to gain a competitive edge, but the philanthropic community can follow a different path and take different risks. We can establish a new standard of transparency by sharing information, leads and opportunities.

While grant-making remains a vital tool in the philanthropic arsenal against climate change, the potential for broader impact lies in leveraging all available resources, including investment capital. As a growing number of foundations are demonstrating, aligning investments with climate goals can drive significant real-world emissions reductions and promote equitable climate action. By focusing on collective strength, sharing knowledge and increasing transparency, the philanthropic community can catalyze a shift toward more substantial and systemic climate solutions. There is a crucial opportunity for foundations to more fully embrace their role in financing the fight against climate change, setting an example for other sectors to follow, and ensuring a sustainable and just future for all.

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