PhilTV: Do Money and Mission Mix? How Foundations Are Using Sustainable Investment to Address Climate Change

Tuesday, May 31, 2016

Do Money and Mission Mix? How Foundations Are Using Sustainable Investment to Address Climate Change
By John Wilson, Head of Corporate Governance Engagement & Research, Cornerstone Capital Group
Climate change has emerged as a key priority for investing, both for mission alignment and to offset the significant potential of climate change to harm the economy in the long term.  Fossil fuel companies are at risk because a key asset – their reserves – are at risk of being “stranded,” or unused, as the economy turns away from deployment of fossil fuels.

Many people might assume that investors who are concerned about climate change would simply divest from fossil fuel companies, but in fact leading members of the foundation community are demonstrating a diversity of approaches to the issue, according to Melissa Beck, executive director of The Educational Foundation of America (EFA), Laura Campos, director of shareholder activities, Nathan Cummings Foundation, and Stephen Heintz, CEO/President, Rockefeller Brothers Fund.

Together, they answered the following questions at Philanthropy New York’s panel discussion last month, “Active Ownership vs. Divestment: When Is It Either-Or? Can My Foundation Do Both Well?

  • Can a foundation’s investments play a role in advancing the mission of the organization beyond being a source of funds? 
  • Can endowments incorporate Environmental, Social and Governance (ESG) concerns into investment activities in a manner consistent with fiduciary duty? 
  • Should foundations concerned with climate change divest from fossil fuel companies, or engage with companies to try to change their behavior?

Each of the three foundations has a long history of aligning mission with investing activities, and viewing investment as a creative means of extending the reach of the organization’s mission-related activities. 

All of the organizations use traditional program-related investments, but also apply ESG policies to their entire portfolios. Nnone of the panelists felt there was a conflict between their fiduciary duty and their alignment of mission and investments. 

Ms. Beck noted that EFA’s screens already eliminated most fossil fuel companies, making it easy for them to go completely fossil-fuel free. 

By contrast, the Nathan Cummings Foundation has not chosen to divest, even though climate change is a core programmatic priority. Instead, they use their ownership stakes in companies to engage them in dialogue about their efforts to reduce carbon risk and mitigate climate change.

Ms. Campos gave the example of home builders, some of whom have developed policies to address climate change in their operations following dialogue with shareholders. She also addressed efforts to reform the corporate governance of energy companies, in the hopes of encouraging them to adopt a longer-term strategy for climate change and other issues of concern to long-term shareholders.

The Rockefeller Brothers Fund takes a hybrid approach.  Their commitment to climate change grows out of its own mission, which is influenced by its historical connection to Standard Oil and its legacy companies. 

Mr. Heintz discussed how Rockefeller initiated a dialogue with ExxonMobil, but after several years of talks without any progress, Rockefeller elected to divest instead. He added that given Rockefeller’s historical relationship with the company, their decision to divest was a major news story which brought attention to the issue of climate change and to the connection to the fossil fuel industry.  The fund continues engagement with other industries, and has considered climate-related impact investments.

The group agreed that there was a place for both divestment and engagement, and that each foundation needs to determine the best strategy based on its own mission, culture and capacity.

Nevertheless, there are a number of practical challenges to overcome:

  1. Foundations need the active support of leadership.
  2. They also need the right kind of relationship with asset managers. Investors in co-mingled funds have little control over how those funds are invested, and may not be able to execute an ESG strategy unless they use managers who have a specialty in ESG issues. Even those investors using separately managed accounts need to work with managers who are willing and able to support these activities.
  3. Finally, investors need a clear set of policy guidelines, and an understanding of how the goals of these policies will be met.
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