Nonprofit Chronicles

Journalism about nonprofit organizations and their impact

Foundation investments aren't typically

Foundation investments aren’t typically “green.”

In an opinion piece for the Chronicle of Philanthropy last spring headlined Foundations Must Move Fast to Fight Climate Change, Larry Kramer, the president of the William and Flora Hewlett Foundation, and Carol S. Larson, the president of the David and Lucile Packard Foundation, wrote:

Climate change is the defining issue of our day. It is an urgent global crisis that affects everything philanthropy seeks to do, whether it is to improve health, alleviate poverty, reduce famine, promote peace, or advance social justice. It is a problem that can and must be solved — a problem that demands action now, while we still have time. And it is a challenge on which foundations can make a profound difference.

But what kind of action? Kramer and Larson went on urge foundations, which currently spend less than 2 percent of their grant-making dollars to fight climate change, to do more. That’s fine. Fine. They said nothing about an action that dozens of foundations have taken in the last couple of years–selling their fossil fuel holdings, and investing a bigger portion of their endowments in companies and projects to fight climate change.

Neither the Hewlett nor the Packard endowments, worth $8.6 billion and $6.9 billion, respectively, have divested from fossil fuels. Nor have any of the US’s 10 biggest foundations, even though most of them, including Hewlett, Packard, the W.K. Kellogg Foundation, the Gordon and Betty Moore Foundation and the John D. and Catherine T. MacArthur Foundation, are major funders of environmental causes.

Curious, no? As the activists at Go Fossil Free like to say: “If it is wrong to wreck the climate, then it is wrong to profit from that wreckage.”

Well, perhaps it’s not so curious. Historically, there’s been a kind of Chinese wall between endowments, which are overseen by the boards of directors and their advisors, and foundation grant-making, the purview of program staff. One group makes money. The other gives it away. That’s changing, particularly as more foundations make program-related or mission-related investments, but for the most part foundations remain reluctant to own up to what they own.

“It’s a mindset issue,” explains Stephen Viederman, the former president of the Jesse Smith Noyes Foundation and current board member and chair of the investment committee at the Christopher Reynolds Foundation. He has labored for years to bridge what he calls the “chasm between mission…and investment.”

The boards of the largest foundations and certainly the members of the finance committees are people who come out of the finance world,” Viederman says. “They know how to maximize return because they do it in their day jobs.” Their mantra is that they can’t sacrifice financial gain in order to pursue social or environmental goals.

Dorsey_Ellen_21744_CROPThe encouraging news is that a growing number of foundations are trying to align their investments and grant-making, particularly when it comes to fossil fuels. They don’t believe that selling off fossil fuels will necessarily hurt financial returns. “A strong case can be made that these are volatile and risky investments,” says Ellen Dorsey, the executive director of the Wallace Global Fund. Stephen Heintz, president of the Rockefeller Brothers Fund, says: “There’s a growing analysis that suggests that further investments in fossil fuels are going to be bad investments. At the same time, the value of alternative energy sources are going to grow.”

In the foundation world, Dorsey and Heintz are in the thick of the divestment debate. She helped start DivestInvest Philanthropy, a campaign to get foundations out of fossil fuels and into investments to address climate change. The Wallace Global Fund also makes grants to 350.org, which is leading the divestment movement, and the Carbon Tracker Initiative, which analyzes the so-called carbon bubble. Meanwhile, the Rockefeller Brothers Fund made headlines last year when the fund, whose board includes heirs to the oil fortune of John D. Rockefeller, agreed to divest from fossil fuels. Its endowment of $866 million is the largest of any foundation to agree to divest. (The much-bigger Rockefeller Foundation, with $4.1 billion is assets, does not screened out fossil fuels but says that “funds that promote renewable energy and support sustainable forestry practices are in our current portfolio.”)

Because they are chartered to serve the public good, foundations need to have a serious debate about climate and their investments, Dorsey told me by phone.

“Philanthropy, more than any other sector, besides, I would say, the faith community, has a powerful mandate to look at this call to action and have, at minimum, a serious dialog,” she said.

DivestInvest Philanthropy lists more than 100 foundations, most of them small, that have agreed to eliminate fossil fuel companies from their investment portfolios over the next five years. They have also agreed to invest at least 5 percent of their assets in climate solutions–clean energy, energy efficiency, electric vehicles and the like.

SBHWeb12_12_11That’s impressive, given the fact that the DivestInvest effort launched only about 18 months ago. Dorsey and Heintz told me it took years of low-key board discussions before their foundations agreed to divests. Change comes slowly because foundation assets are often are tied up in long-term contracts with external fund managers, and some well-regard managers won’t agree to work with mandates about fossil-fuels.

Heintz said he made a moral as well as an economic argument to the Rockefeller fund trustees, say they had an opportunity to use “our brand name and reputation assets” to advance the debate. They also had an opportunity to deploy assets to support their programs; the board has pledged to invest 10 percent of its endowment to that end, and so far has committed $35 million to mission-aligned investments, including clean energy and energy efficiency. By comparison, fossil fuel holdings accounted for about 6.6 percent of assets before the divestment process began;  they are now down to about 4.4 percent and headed to zero.

It must be said that none of this is simple. Lines must be drawn between companies whose core business is fossil fuels and those who depend on them, like utilities that burn coal or auto companies that burn gasoline. Are nuclear power companies a “climate solution”? (I’d say yes, but they don’t appear to be a good investment, for now.) And shouldn’t investors try to make distinctions between fossil fuel companies like Shell, that recognize the reality of the climate threat and call for a price on carbon, and those, like ExxonMobil, which has a long history of sowing doubt about climate science? Then again, Shell wants to drill in the Arctic and Exxon now supports a carbon tax, sort of. Like I said, it’s complicated.

But complexity should not excuse inaction. Larry Kramer and Carol Larson are right that climate change is the defining issue of our day. Yet foundations are owners of companies that are drilling, feverishly, and in some very risky places, for coal, oil and gas. Does that make sense?

5 thoughts on “Why won’t foundations divest from fossil fuels?

  1. Divestment is the primary strategy needed to get the politicians engaged enough to finally set a price on carbon and tax and disincentivize it. In and of itself divestment doesn’t solve anything – we’re well aware of that – but it’s part of how pressure is applied on the status quo. Shareholder advocacy, of which I am an active participant, is also important, but let’s be real: advocacy won’t convert fossil fuel companies into renewable energy companies, all the advocacy does is make them aware of and hopefully take seriously the risks associated with stranded assets, but they will hold on as long as possible to their current business model unless otherwise forced to change. Divestment, investment, advocacy, public policy – all essential ingredients to transforming business’ relationship to the natural world.

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  2. Sanjay Kapoor says:

    Excellent highlight of the contradictions many of us live, including foundations. Reminds me of a line from Roberts’ Shantaram, “If we can’t respect the way we earn it, money has no value.”

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  3. Interesting points you’ve made Marc. But it’s also important to recognise that there are also counter arguments to divestment, mainly relating to engagement by concerned investors. I’ve recently summarised the arguments in this post: https://currentlyunderdevelopment.wordpress.com/2015/07/12/divestment-dilemma-resolution-revolution-or-evolution/

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    1. Marc Gunther says:

      Thanks, and there’s no doubt that shareholder advocacy has a role to play in reforming companies. But I think it unlikely that shareholders can persuade oil companies to stop extracting oil. Besides, a foundation would only need to hold a small number of shares to retain its ability to engage with company boards and managers. Money invested in clean-energy solutions will have more impact, in my view.

      Liked by 1 person

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