There is a consensus that private investment capital is critical to meeting the 2050 goal of Net Zero emissions, limiting global warming to 1.5°C. The relative scale of investment capital, compared to philanthropic capital or possible government expenditures, is also well understood. It is critical that these different types of capital work together, but there is no question that in order to fundamentally shift the global economy and meet our climate goals, investment capital will be the primary driver.
While most understand this, the questions remain: why aren’t we making accelerated progress, and how can we catalyze capital to more aggressively shift towards financing the solutions required?
At the 13th Annual Confluence Practitioners Gathering in Boston last week, Capricorn Investment Group’s William Orum convened to discuss The Power of Collective Action for Foundations to Advance Net Zero alongside Nili Gilbert of The David Rockefeller Foundation and Kathleen Simpson of The Russell Family Foundation. Though pathways to the end goal differ, the time to act to meet Net Zero goals is now, and foundations can play a leadership role in catalyzing capital towards Net Zero and climate goals.
Foundation capital is unique in many ways – it is inherently mission-aligned, long-term, flexible in nature, and it is held by institutions which fundamentally understand the role of catalytic capital in addressing systems-level challenges.
Perfect cannot be the enemy of good
Two decades ago, impact investment options available to asset owners were emerging and limited. The technology and cost curves for climate-related solutions were still in early phases of maturation. Asset owners determined to participate did so despite hurdles and, in turn, engaged with fund managers to shape the offerings of the next decades.
Drawing parallels to the early impact investing movement, perfect cannot be the enemy of good in forging pathways to Net Zero. Asset owners willing to act will have the chance to engage and shape ecosystem development in areas such as new market formation, regulation, product creation, monitoring, and measurement.
We believe it is important to approach Net Zero goals with a long-term commitment and a stable framework for investing, considering three key buckets outlined below.
- Measuring GHG emissions: Asset owners should evaluate each investment for current and future carbon emissions to determine its role in enabling a low-carbon transition, impact on broader portfolio emissions, and carbon-related financial risks and opportunities.
- Portfolio decarbonization: Depending on scope and scale, all asset classes should be considered potential levers in influencing portfolio decarbonization. Climate-aligned investments exist across public and private asset classes and can range from new and innovative technologies with commercialization potential to available solutions replacing existing high-emitting infrastructure.
- Nature-based carbon solutions: As we all collectively reduce true emissions through engagement, carbon removals through nature-based solutions can provide a path to Net Zero. Foundations have the power to engage on the Net Zero movement by working with fund managers who are policy experts shaping the regulated carbon markets and setting high standards for carbon removal project quality.
In summary, by acting now, we believe foundations can punch above their weight – lending their collective power to a global movement, which requires far more than a few brave actors – by encouraging others to actively engage in addressing some of the world’s most pressing challenges.