The Four Conditions for an Effective Climate Philanthropy

The Four Conditions for an Effective Climate Philanthropy!

Professor Arthur Gautier and researcher Eléonore Delanoë of the ESSEC Philanthropy Chair, together with Dr. Charles Sellen, PhiLab UQAM, write on the potential roads philanthropy can take towards supporting the green transition and what it can do to maximize its impact.

Professor Arthur Gautier and researcher Eléonore Delanoë of the ESSEC Philanthropy Chair, together with Dr. Charles Sellen, PhiLab UQAM, write on the potential roads philanthropy can take towards supporting the green transition and what it can do to maximize its impact.

The Four Conditions for an Effective Climate Philanthropy. First published in French via The Conversation, by Professor Arthur Gautier, Eléonore Delanoë, and Charles Sellen.

Whether the pledge announced by the Hewlett Foundation, one of the largest foundations active in the field of climate action, to mobilise the sector; or the recent promise by Jeff Bezos, CEO of Amazon, to provide €10m to help in the fight against climate change, the climate cause has intensified among donors. As such, the philanthropy sector is now resolutely in marching order to meet the challenge.

If it wishes to effectively mobilise beyond the usual specialists and already-convinced philanthropy will have to tackle three major issues: systematic proof of positive impact on the climate – dubbed “climate co-benefits” – in funded projects; exemplarity of its operations and investments; and its capacity to attract various stakeholders in a spirit of dynamic action and political change.

Recognising climate as a cross-sector stake

Foundations often approach climate philanthropy as an isolated topic. This “silo” approach has two failings: it reduces the field of potential donors and dissuades programmes that link climate to other causes.

However, in the world of public institutions for development aid such as the French Agency for development (AFD), climate has been treated as a cross-sector cause since the early 2000s. It is now systematically included in the analysis and financing of projects, whatever the sector – urban development, energy, waste water, educations, health among others.

As such, in the 2017-2022 period, the AFD set itself a triple objective to systematically measure the carbon footprint of the projects it financed, allocate “50% of its funding to co-benefit climate projects”, and become the “first bilateral development bank with an explicit mandate to implement the Paris Climate Agreement.”

Even when they are not specifically specialised in climate issues, foundations can subsequently all contribute to taking on this dimension in their sector of activity by systematically seeking a positive impact or, as a minimum, a neutral impact on the climate in their programmes.

A logical approach given the sheer size of climate change’s effects to come. “Everything foundations support today will be impacted by climate change,” says Sasha Spector, Director of the environmental programme at Doris Duke Charitable Foundation, an American fund specialised in protecting biodiversity, and whose reforestation projects also aim to fulfil the objective of carbon offsetting.

Climate change will most certainly have a disproportionate impact on the most vulnerable populations which indeed make up a large part of foundations’ beneficiaries. In 2005, Cyclone Katrina made a lasting impression on people’s minds with its devastating impact on deprived communities in New Orleans and gave voice to the movement for “climate justice”.

For Vidya Shah, CEO of the EdelGive Foundation  a member of the  Indian Climate Collaborative, a recent group created to federate the major players in Indian philanthropy around the theme of climate, “foundations in India are not generally focused on climate, but they often have activities that are impacted by climate change, such as the resilience of rural communities in the wake of cyclones, for example.”

Foundations active in education, the media or cultural fields, do not want to be left out of the fight. Since the historic success of the film An Inconvenient Truth, notably financed by the Canadian philanthropist Jeff Skoll, they know that they play a major role in changing people’s perceptions and mentalities on climate change.

Being credible by being beyond reproach

Foundations and associations are not only actors committed to the climate cause. They are also organisations that emit greenhouse gases and, as such, their responsibility from a climate point of view is to examine and reduce emissions generated by their activities.

Contrarily to large corporations, foundations possess few “tangible assets” – buildings or machines, for example – and their carbon footprint is in this respect negligible. It is a totally different question regarding their financial and non-tangible assets. Their capital funds, mainly invested in financial markets in the form of bonds and shares, are far from being based on hearsay.

In Europe, their combined assets represent €511 bn according to the Centre for European Foundations. They could, moreover, show proof of a little more audacity in committing to portfolio “decarbonisation” strategies, advocated, for example, by the Divest-Invest movement.

Two reasons justify this approach: on the one hand, the necessity to be consistent and link actions to words. What credibility should we give to a foundation that claims it protects the environment while investing in fossil fuels?

On the other hand, the amount of annual donations represents only a small share of a foundation’s capacity to act. In the classic pattern of capitalized foundations, the foundation’s capital is notably placed on financial markets with the goal of ensuring durability and therefore giving-capacity for a longer period of time.

The result is that the available budget for donations does not correspond to the capital itself, but to the average annual interest earned on investments – generally representing 5 % of the foundation’s capital. As such, to involve the philanthropic sector entirely in a climate resilience approach, the unspent 95% would have to be mobilised, as well as ensuring that this money is invested in assets that drive the energy transition, or which are testimony to a sincere commitment to reduce the carbon footprint of asset portfolios.

Climate philanthropy: Investing responsibly

The Four Conditions for an Effective Climate Philanthropy: Professor Arthur Gautier and researcher Eléonore Delanoë of the ESSEC Philanthropy Chair, together with Dr. Charles Sellen, PhiLab UQAM, write on the potential roads philanthropy can take towards supporting the green transition and what it can do to maximize its impact.

Via their low-carbon investment strategies, can foundations weaken the high-carbon industry emitters? Without a doubt not directly – nor in the short term. Firstly, because the foundations’ investments only count for a minute amount of financial transactions: and secondly, because investors attracted by the quick win in hydrocarbons are still very much present. Polluting industries will therefore have no trouble in continuing to finance themselves on the markets – even without the support of foundations.

The majority of philanthropic foundations aim to conserve the value of their endowments over time and, as such, seek to invest in assets that have low financial risk. This limits their appetite for young start-ups focused on the green transition. Although having a strong potential for growth, the latter present a risky profile to which is added uncertainty linked to technological and political contexts under constant change on the questions of climate and energy.

The transition towards a low-carbon economy represents a challenge for the whole financial sector. Philanthropy foundations, however, are well-placed to open the path to more responsible investment strategies. In France, side by side with the public establishments already involved within the framework of the French Stratégie nationale bas carbone (National low-carbon strategy), which other category of actors would be best placed to set an example?

Aiming for climate co-benefit in the majority of financed projects, and re-orienting their investments towards low-carbon assets: here are two essentials required for the philanthropy sector to fully play its role and remain consistent with its values. Foundations are unfortunately very far from being able to be game-changers in themselves. Setting up the required policies and allocating the necessary billions of euros to climate transition needs the mobilization of the whole of society: citizens, institutional investors, decision-makers, and companies to name but a few.

Mobilizing society to influence the decision-makers

In this regard, foundations do indeed have the capacity to play a catalysing role, bring together the various stakeholders, and create a virtuous group dynamic. Thanks to its capacities of adaptation and its greater room for manoeuvre – contrarily to state action, it isn’t limited by electoral constraints – philanthropy can place a subject at the centre of the state agenda via petitions and appeal, support for networks of actors and researchers, or innovative local initiatives.

Marie-Stéphane Maradeix, Director General of the Fondation Carasso, which promotes sustainable food, is one of the leading figures in integrating climate in French foundation strategies. According to her, even with limited means, a foundation can have sizeable leverage. It can support social movements in their bid to change and re-structure things, finance fab labs whose outcomes will supply state action, and even lend support to decision-makers in their transition policies.

This is the case with the Kigali Cooling Efficiency Program, an initiative bringing together 17 foundations and $51m to support developing countries in their initiatives to reduce  hydrofluorocarbons – gases used in refrigeration and aerosols – that create a greenhouse effect 14,000 times more powerful than CO2.

Climate philanthropy: A catalyst for the green transition?

Despite insufficient means to combat the size of the climate crisis, philanthropy indeed has several useful cards to play: including climate in every programme and cause, investing and acting in a low-carbon mindset, and bringing leverage to bear on state decision-makers by gathering a variety of different stakeholders around the table.

Several recent initiatives include, in the UK, the Funder Commitment on Climate Change. This groups forty-or-so philanthropy foundations having made concrete commitments to the climate (notably training, including climate in existing programmes, freeing up means, investing endowments, and the reduction of their carbon footprint) and pledging to assess their progress on this.

And in France, Fondations et Climat groups 10 foundations. These focus on 3 areas of action following the same three strategies outlined above: adapting the programmes of the member foundations to climate stakes, reducing their environmental footprint, and strengthening international networks in the field.

It remains to be seen if these pioneering initiatives will be followed wider afield and give rise to a catalysing effect that will manage to carry the whole of society with it.

Arthur Gautier, Eléonore Delanoë, and Charles Sellen: The Four Conditions for an Effective Climate Philanthropy
Arthur Gautier, Eléonore Delanoë, and Charles Sellen

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