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RISK-TAKING Innovations in infrastructure and technology are vital for scaling up the clean energy transition. But investment in them is financially risky and returns can take years to materialise. Big philanthropic organisations are slowly moving in to fill the venture capital gap in the energy transformation, but they could be doing much more
INCREASED INVESTMENT Philanthropic foundations in the US and the EU are showing a heightened commitment to fighting climate change. In the US, grants from foundations to environmental projects increased by more than 10% from 2017-2019, to reach $75.86 billion
KEY QUOTE Many investors say they would like to invest in clean energy, but lack attractive projects. Foundations can help lead the way
Big philanthropic organisations are significant sources of cash and have the capacity to change policies. The impact of the Bill and Melinda Gates Foundation on vaccination programmes in developing countries is a good example. Climate change, however, has tended not to be at the forefront of rich donors’ minds. This is starting to change, with new cash injections that could help drive innovation and the implementation of clean energy technologies.
An increasing number of philanthropic foundations are focusing on clean energy and ways to help accelerate the transition. In the US, grants from foundations to environmental projects increased by more than 10% from 2017-2019, reaching a total of $75.86 billion, says the latest report from Giving USA. “There is definitely a heightened commitment to fight climate change and an increased push for clean energy from foundations,” says Leslie Crutchfield from Georgetown University’s McDonough School of Business and senior advisor at FSG, a consultancy.
Foundations can often bring financial support to projects that would be seen as too high risk or long-term for public funds or private investors. Foundations are probably the only investors that can accept a 100% loss of an investment, says Crutchfield. This ability to be less risk averse could have a “great impact” on the energy transition, states Connie Hedegaard, former European Climate Commissioner and chair of a number of foundations and executive boards. “Foundations can take first-mover risks, help finance test phases, implement solutions that are not yet mainstream and help bring new clean energy technologies to market,” she says.
TAKE THE FIRST STEPS
Philanthropic organisations have a unique opportunity to drive innovation forward, “even when it is sometimes uncertain what the result and effect will be”, says Mark Kramer at Harvard Business School and co-founder of FSG. He cites the Rockefeller Foundation as a good example of an organisation willing to take risks. It has declared the ambition to “catalyse and scale transformative innovations, create unlikely partnerships that span sectors and take risks others cannot — or will not”.
Foundations can also help pave the way for further private investments. “Their efforts and experiences can make clean energy investments safer for non-philanthropic capital,” Hedegaard says. “Many investors say they would like to invest in clean energy, but lack attractive projects. Foundations can help lead the way by initiating dialogue with authorities, engaging in business partnerships and by taking the first and most risky steps towards implementing new technology.”
In China, the US-based David and Lucile Packard Foundation invested in a pilot project focusing on energy efficiency in the steel industry. The project challenged CEOs and managers to set and achieve energy efficiency goals. After successful results during initial tests with two companies, the Chinese authorities rolled out a three-year test phase in 1000 enterprises, leading to energy savings of 156 million tonnes of coal equivalent from 2006-2010. The country has the potential to reduce emissions by 2.9 gigatonnes of coal equivalent through energy efficiency measures.
In January 2020, the US Kresge Foundation announced a $3.3 million commitment to accelerate the development of solar and storage technologies in low and moderate-income neighbourhoods. “Our ambition is to help build more resilient and energy friendly electricity infrastructure in places where these technologies are not yet brought to scale,” says the foundation’s Jessica Boehland. “We believe philanthropy is well positioned to help make a swift and equitable transition from fossil fuels to clean energy.” The foundation promises participating lenders a 50% payment guarantee for loans made to solar and storage projects over a 14-year term.
UNTANGLING THE DIFFERENT FOUNDATIONS
Headquartered in New York, the Rockefeller Foundation was established in 1913 by Standard Oil owner John Rockefeller. The foundation works to advance new frontiers in science, data, policy and innovation to solve global challenges related to health, food, power, and economic mobility.
The David and Lucile Packard Foundation, headquartered in California, was established in 1964 and supports leaders and institutions across the globe working on issues including climate change, oceans, agriculture and health.
The Kresge Foundation works to expand opportunities in America’s cities through grant-making and investment in arts and culture, education, environment, health, human services and community development efforts.
The Hewlett Foundation was established by William Redington Hewlett, co-founder of information technology giant Hewlett-Packard, and his wife in 1966. It has grant-making programmes in education, the environment, global development and population, and the performing arts.
Headquartered in the Netherlands, the IKEA Foundation is the philanthropic arm of Stichting INGKA Foundation, owner of the furniture retail giant. The foundation supports programmes focused on improving lives for families, protecting the planet and helping refugees and other displaced people become self-reliant in their new communities.
The Bitten and Mads Clausen Foundation was established in 1971 by Bitten Clausen, widow of the founder of Danish engineering company Danfoss. It supports projects related to research and education, local neighbourhoods and communities and sustainability.
In the last decade, the entire philanthropic sector has undergone a profound change. Rather than focusing on single prestigious projects, increasing numbers of foundations are investing in global challenges with the ambition to create greater and more measurable impact, says Kramer. “They work more strategically and with clearer goals to get greater impact for their money.” The more focused approach is clearly seen in the area of energy and climate change, he says, with big hitters in Europe and the US, such as the Hewlett, IKEA and Danish Bitten and Mads Clausen foundations, all making climate investment a strategic goal.
Nonetheless, the bigger picture shows combatting climate change still represents only a sliver of all philanthropic activity. Many foundations hold on to a long tradition of giving grants to social and cultural, rather than environmental, projects, says Kramer. But he foresees the energy area gaining much further attention in coming years.
“It is an urgent challenge that ticks a lot of boxes as an attractive investment area for a foundation: the importance is clear, and foundations can fund research and experiments that are not yet commercially viable,” he says. “They can also influence public opinion and government policy to encourage regulations and subsidies.” Kramer does not believe the current spending by foundations on Covid-19 will impact longer term interest in climate change. “Covid-19 is such an extraordinary situation. I don’t think this will change the way foundations give out money and what they will invest in the coming years.”
Boehland also foresees a growing interest as more funders not only see the benefits of clean energy, but also how climate change threatens their communities and their other priorities.
TEXT Anna Fenger Schefte
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