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Foundations: $600bn of assets that need to get active
Why foundations should use the markets to support their philanthropic work.
Foundations operate with one arm tied behind their backs. As the owners of at least $600bn (€384bn) of the global economy, it is those investable assets that earn the money most give away each year. Using these assets more actively would add value to the grants that foundations award. It is also a key component of a grant maker’s fiduciary responsibility. Yet two recent reports on foundations and climate change demonstrate the chasm between financial and philanthropic investing. Both focus on actions that could mitigate the effects of global warming, help the world adapt to climate change and provide long-term solutions to slow the pace of this change. The first is “Taking Action on Climate Change,” a report from the William and Flora Hewlett Foundation. The second: “Design to Win: Philanthropy’s Role in the Fight Against Global Warming,” prepared by California Environmental Associates with support from six foundations, is the more detailed of the two reports. It estimates that foundations now make about $200m in grants annually to fight global warming and that at least an additional $600m is needed. Sadly, but not surprisingly, neither report even hints that financial investment of foundations’ endowments could have value. The $600bn therefore remains uninvolved.
Climate change is not just an environmental issue. It affects all parts of society and encompasses virtually every cause that foundations support. To use endowments to support market-based solutions to climate change does not require a change in their guidelines. But it does require a change in thinking about the way that financial assets can and should be used constructively. What should these reports have said about what foundations can do to win the fight against global warming? Firstly, that they should vote their proxies on climate change. As large and small shareowners of corporations, foundations have an obligation to let the companies know their concerns. In the next few months, at least 60 shareowner resolutions will be filed with more than 50 companies on a wide range of issues related to climate change. The proponents of these resolutions are state and city pension funds, labor unions, religious orders, a few foundations, and other institutional investors. The groups behind these resolutions collectively manage more than $200bn in assets. Proxy voting makes a difference. In 2004, American Electric Power responded to shareowner pressure by issuing a report on the actions it was taking to significantly reduce carbon
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