We Are Facing a Planetary Crisis
Time is Not on Our Side
The evidence is overwhelming; we have about ten years left to avoid irreversible catastrophic ecosystem disruption. These ecosystems sustain all life, including human life, on the planet. Such disruption will dislocate millions of people, lead to greater social conflicts over resource degradation and scarcity, and wreck billions of dollars of damage on human life and the built and natural environments, as well as to local and national economies around the word.
This stark reality is reflected in the 2018 report by the Intergovernmental Panel on Climate Change, and in the Fourth National Climate Assessment recently issued by the U.S. Department of Commerce. An even more recent report published in May 2019 by the Breakthrough National Centre for Climate Restoration in Australia warns that current trends leading to a 1.5 degree Celsius or more increase in temperature means humanity may be facing tremendous peril and mass extinction by mid-century as rising temperatures send the world into social, economic, and environmental disarray.
Urgent action on a massive scale is needed now to have any hope of averting this scenario, which will affect every aspect of society. Climate change is not one thing: it is everything and everywhere. The wellbeing of humans and the planet are inextricably linked. Whether your work is in the U.S. or abroad; is focused on human rights, poverty, immigration, community development, health, or any other issue; climate change stands in the way of your mission.
To address climate change at the scale and with the urgency required, impact investors not only need to support bold solutions, we need to examine and evolve how we work, spend, and invest every dollar to ensure that our assets don’t work against our missions and actually work towards solving the existential threat of climate change. We must also recognize that fundamentally changing how we power our world will require a “just transition” so that no workers or communities, especially those hardest hit by change, are left behind.
What We Invest In Matters
To invest is to take a bet on the future. In the case of climate change, that bet is based on whether you believe the preponderance of scientific evidence and, as well, the analyses of climate risk emerging from the finance and insurance industries. How institutions, including philanthropic institutions, invest their assets is a critical component of the action needed to put us on a path to a truly just and sustainable future. If your institution invests in companies involved with fossil fuel extraction, exploration, production, refining, or developing fossil fuel infrastructure like pipelines, then you “own” climate change and are exacerbating current climate disruption and contributing to future planetary chaos. This is a sobering, but stark reality that we need to confront with honesty and conviction.
It is a reality that has shaped and refined the Sierra Club Foundation’s mission, goals, methods, and values over the last ten years. Our learning journey has transformed our approach to investing assets entrusted to us towards greater reconciliation with our charitable mission.
Learning by Doing
In 2009-2010, like many foundations, none of our investments were intentionally screened for mission alignment; our primary concern was maximizing financial returns to apply toward our organizational mission. However, our investment committee began grappling with the disconnection between our charitable mission and how we were investing our assets. We realized that some of our investments actively worked against our core goals of solving the climate crisis, securing protections for public lands and waters, promoting healthy ecosystems and communities, advancing policies and programs that get people outdoors, and building an environmental movement rooted in equity, inclusion, and justice. How could we continue to invest in companies and activities that were in direct conflict with all that we were trying to achieve?
Early efforts to address this disconnection included consulting with managers experienced with what at the time was called “socially responsible investing” (SRI), a phrase used to describe investing practices and decisions where ethics, values, and beliefs are critical considerations. Our investment committee began to transition the Foundation’s equity holdings in our operating and endowment portfolios into SRI holdings, initially using negative screens to avoid investments that did not align with our values. As we learned more, examined our portfolio’s performance over time, and became familiar with market research comparing the performance of traditionally invested portfolios with socially responsible investment portfolios, we realized that the conventional view that socially responsible investing means sacrificing returns was not true.
From SRI negative screens, Sierra Club Foundation moved to more intentional positive screening using environmental, social, and governance (ESG) criteria along with a commitment made in 2013 by our board of directors to completely divest from fossil fuels and invest in companies promoting climate and clean energy solutions. This decision was based on our goal to completely align our investments with our mission, but which we also consider to have a financial impact because of the increasing downside risk of fossil fuel companies holding “stranded assets.” In a carbon-constrained world that faces increasingly severe climate disruption and adverse effects on all life, these companies will not be able to access fossil fuel reserves, which we believe will cause a major correction in the value of these companies.
The Sierra Club Foundation was one of the initial signatories to the Divest-Invest Philanthropy Initiative in 2014 (a pledge to completely divest from fossil fuel holdings and instead actively invest in climate and clean energy solutions). We prioritize mission-aligned ESG investing without compromising the Foundation’s strategy to achieve superior long-term performance. Instead, we believe ESG investing allows us to moderate risk and maximize resources available to meet the mission objectives of the Foundation. Notably, our ESG investments have consistently outperformed a blended benchmark comprised of standard indexes. As a result of our mission-aligned investment practices, the Sierra Club Foundation won the 2018 Chief Investment Officer (CIO) Industry Innovation Award for ESG investing.
In 2018, the Foundation’s board of directors unanimously affirmed the Foundation’s commitment to fully align its traditional investment portfolio with its mission. As part of this commitment, they established a new High Impact Investment Fund, a separate pool intended to accomplish one or more of the Foundation’s charitable purposes (impact first) rather than the production of income or appreciation of property (return first). Through this fund we seek investments that directly benefit people and their communities with the resources, systems, and technologies needed to implement and scale clean energy and energy efficiency solutions. This fund is focused particularly on opportunities that directly benefit communities on the front line of fossil fuel extraction and pollution, which are most often low-income and majority people of color and Indigenous communities.
Solutions-Focused High Impact Investments
Examples of solutions-focused high impact investments we have made in the last year are described below:
Standing Rock Renewable Energy Project
Sierra Club Foundation provided a $250,000 recoverable grant to the Seventh Generation Fund for Indigenous Peoples, Inc., the fiscal sponsor for the Standing Rock Renewable Energy project, to develop a majority Tribal-owned utility-scale wind farm on the Standing Rock Sioux Tribe’s reservation. The recoverable grant is designed to convert to an equity holding in Standing Rock Renewable Energy Partners LLC once a project developer is secured to build the project and attract additional project financing. Our early stage investment is designed to help “de-risk” and strengthen the project for other potential investors and to materially improve the Tribe’s negotiating and long-term ownership position. We are co-funding the pre-development phase along with the Wallace Global Fund and The JBP Foundation.
A $500,000 unsecured five-year loan at one percent (1%) simple interest per year to Navajo Power (a certified B Corporation) is helping to develop utility-scale solar energy and storage projects in conjunction with communities of the Navajo Nation. Loan proceeds will support solar project development costs, such as securing land access agreements, permits, entitlements and approvals, and transmission and environmental studies – part of the pre-development phase for which traditional financing is typically not available. We are investing in Navajo Power alongside the Grove Foundation, which has also provided loan financing, and other foundations that have made direct charitable grants to the project.
Sierra Club Foundation provided a $250,000 investment in Sunwealth’s 2019 Solar Impact Fund Bond Offering in the form of a loan/promissory note for a five (5) year term at five percent (5%) annual interest. Interest is paid quarterly and principal is paid at the end of the term. Sunwealth’s mission is to invest in the future of clean, renewable energy, specifically solar energy, while generating financial returns for investors, and social, economic, and environmental benefits to the communities where solar projects are deployed. Using a “community portfolio approach,” Sunwealth’s economic inclusion model takes into account climate change and wealth inequality. It facilitates more equitable and affordable access to solar energy through an investment and financing model that itself is more equitable and affordable to a broader range of investors, not solely large institutional or high net-worth investors. Our investment will support deployment of small-scale solar installations serving nonprofits, schools, houses-of-worship, commercial buildings, municipalities, multi-family/multi-unit housing developments, and low- and moderate-income homeowners.
PRIME Impact Fund
A $250,000 direct equity investment in the PRIME Impact Fund helps provide financing for transformative, climate-focused technology companies at the earliest stages. The fund’s unique model — combining philanthropic capital, a patient time horizon, and an impact-first orientation — enables it to make high-risk, high-reward bets. The Impact Fund is an offering of the Prime Coalition, a 501(c)(3) public charity that partners with philanthropists to invest charitable capital in companies that combat climate change, have a high likelihood of achieving commercial success, and would otherwise have a difficult time raising sufficient financial support.
Stepping Up to the Challenges
To get where we are today, the Sierra Club Foundation had to cultivate a number of key ingredients, common among many foundations that have committed to deeper mission-alignment across their assets. We needed:
A strong commitment from the Foundation’s board of directors and dedicated leadership from Foundation staff
To think outside of the box, get out of our comfort zones, and take informed risk
To embrace a willingness to learn by doing, without necessarily having all the answers before we commit to action
To have difficult and challenging conversations that examine our assumptions about what and who is considered “investment worthy” and implicit biases about trade-offs between risk and reward
To work collaboratively across mission, program, finance, and investment while resisting the temptation to revert to traditional investment biases
To consult with and form partnerships with peers and experts, including legal counsel, and to reciprocally share, but not rely on, due diligence with other impact investors when appropriate
To explore opportunities and make decisions informed by an increasing sense of urgency given the magnitude of the challenges people and planet face due to the existential threat of climate change
With the latest science telling us we must urgently accelerate a just transition much faster than by 2050 if we want to protect the wellbeing of people and the planet, we can no longer afford to view investments as “neutral” and merely a means to an end. The divisions between our charitable mission and programs and our investment practice must be reconciled. Fiduciary responsibility requires considering the impact — current and future — of the investment choices our institutions make, not just the financial gains to be realized.
No matter what your mission focus or priority issue areas, aligning your investments with your mission is critical to working towards a more just and sustainable world. Every institution has a role to play in this work and now is the time for all of us and for our institutions to step up.