24 Jul 2014
Divest! Then what?
Last year when I visited the US, Peter Lipman (Chair of Transition Network) and myself had supper with representatives from 3 large philanthropic organisations there. At one point, Peter asked “so do you invest in coal?” There was some discomfort around the table, and the reply was “no, coal is a terrible investment!” – the clear implication being that if it had been a good investment the answer would have been a different one.
It was, for me, a low point in an immersion into how some parts of the world of philanthropy work. A massive endowment is invested in such a way as to generate the maximum returns. Fund managers are told to invest so as to get at least a 10% return a year. A 10% return is very difficult to do ethically. So money is invested in all sorts of things, including fossil fuels, housing developments etc etc, whatever generates the best return, so that the interest raised can then be invested into projects that try to clear up some of the mess that the endowment may well have played a part in creating. So, put crudely and at it’s worst, for the damage generated by every £1 million invested, £10,000 is put up to try and clean up that mess. What a conflicted model, but one that, to a degree, makes possible the work we do here at Transition Network.
Yet within the funding community, the conversation is starting to change. Philanthropist Peter Buffet (right) wrote in an article last year called The Charitable Industrial Complex about meetings with heads of state, corporate leaders and investment managers. He wrote “all are searching for answers with their right hand to problems that others in the room have created with their left”. He referred to philanthropy as increasingly becoming “conscience laundering” and suggested that given the scale and severity of the climate crisis, foundations need to practice what they preach more, arguing “foundation dollars should be the best ‘risk capital’ out there”. He also added “money should be spent trying out concepts that shatter current structures and systems that have turned much of the world into one vast market”.
Divestment is one of the great campaigns of our times. Last week saw the announcement that The World Council of Churches will be pulling its investments out of fossil fuels, joining a rapidly growing list of organisations in what Archbishop Desmond Tutu calls an “anti-apartheid style boycott of the fossil fuel industry”. Even President Obama alluded to his support for the concept, recently stating “you need to invest in what helps, and divest from what harms”. But the question then arises, “then what?” If the World Council of Churches, a university, or a pension company decide it’s time to divest from fossil fuels, then what might they do next?
The first thing is to recognise that the severity of the climate crisis is such that an endowment will be of little use in 30-40 years. This, here, now, is the time when the window of opportunity exists to avoid the more catastrophic lines (usually in red) on the climate models. I’m not suggesting that now is the time to blow the lot, but some fresh thinking is called for. That thinking is starting to emerge. Confluence Philanthropy is one organisation focused on “guiding foundations towards mission-related investing”. Another, which makes an explicit link between divestment and taking a new approach is DivestInvest, who I only came across while researching this piece. Here’s how they offer to help foundations rethink what they do:
- Assess: Conduct an assessment of your exposure to climate change risk, defining the degree to which you are invested in fossil fuels versus climate solutions and investments that support your mission.
- Consult: Launch a dialogue among Board and Staff on investment strategies that align investments with mission and support a sustainable and just economy.
- Commit: Commit to a timetable and process, commensurate with the pace of climate change, for eliminating all fossil fuels from your investment portfolios while investing in a new, clean energy economy through renewables, clean tech and other innovations.
But what do they propose foundations invest in instead? This is from their FAQs:
“Investment means allocating endowment assets to sustainable, fossil-free investments in climate solutions and the new energy economy. Fossil-free investment opportunities exist across all sectors of the economy and across all asset classes of a diversified investment portfolio, from conventional asset classes such as cash, fixed-income, and public equities (stocks) to alternative asset classes such as hedge funds, private equity, real estate, farmland and timberland, and other commodities and real assets. Investors can invest in clean technology and renewable energy sources such as wind and solar and incorporate environmental, social and governance (ESG) factors into fossil-free investments in other industries, and move their money to more resilient community investing institutions. All portfolios can be readily structured around themes of climate-related strategic asset allocation, carbon risk mitigation, sustainability solutions, and positive environmental impact”.
What else could foundations do? The first point is they will most likely need to lower their expectations in terms of returns. Some more enlightened foundations have already lowered their expected return to closer to 5%, which enables them to invest far more ethically and in a way consistent with their values.
Secondly, get behind the quiet revolution unfolding around the world, through Transition and many other bottom-up community-led processes. There is a new economy out there, being created through community farms, community energy companies, new food business models, new models for care for the elderly. All founded on principles of being rooted in local communities, being low carbon, operating with a wider social purpose, building community resilience. Some of them are captured in last year’s REconomy/Transition Network report The New Economy in 20 Enterprises.
They are doing amazing work mobilising people, innovating and creating new opportunities. But they need support, and as Peter Buffett put it, “foundation dollars should be the best ‘risk capital’ out there”. I’m part of a project in my town called Atmos Totnes, which will be a community-led development, a model of Transition in action. It is just weeks away from signing a historic agreement with the site’s owners. But to get to that stage we had some grants to cover the initial work, without which we wouldn’t have got this far. And it’s a project that over time will need ‘patient capital’ which will be able to unlock the community developing an asset that can then be a real driver for an ambitious relocalisation programme.
Bath & West Community Energy were able to use £1 million invested in them at an early stage to create a share option that then raised £750,000 from local people and inspired further investment from other local organisations. They are now working to support neighbouring communities to do the same thing (see right). Enlightened support can unlock much more more, including investment opportunities for foundations’ endowments. But foundations need to take some of the risk to bring those things into being.
If other institutions, such as universities, decide to divest, then it can be a great opportunity for fresh thinking. Why not take those funds and invest them instead in reimagining how your organisation operates? The Oberlin Project is a great example of what it might look like if a university divested and put the money instead into a crash course of renewable energy, community engagement, new business opportunities and much more, a kind of town-wide Transition. If a hospital trust decides to divest, that could be the incentive for bold thinking in terms of how a hospital that models what a low carbon hospital could look, something we explored here recently.
We shouldn’t forget that divestment is something that we should only be pressuring large institutions to do. Many of us also have pensions and investments, and we need to be more mindful about choosing investments that are true to our own values and sense of urgency around the climate issue. Where community share/investment opportunities arise, get behind them and support them. Also, as individuals, of course, we choose to invest or to divest every day when we go shopping. Which economy is it that we want to create where we live? Do we support local independent businesses or supermarkets? Do we reuse and repair or buy new? We have a lot more power than we might think. Divestment is not just an issue for large organisations.
While the campaign for divestment rightly gains pace, we need, alongside it, a bringing together of foundations, larger institutions and Transition/New Economy organisations, to design models whereby divestment is just the first step. Models which rather than just focusing on renewable energy, seek also to accelerate the new food systems, local economic models, new models for housing and development, new social enterprises, the multi-layered tapestry of new, diverse, resilient economy.
It’s he first step to an urgently-needed model wherein foundations work alongside the communities working at the local scale to build the resilient local economies and infrastructures so essential to a low carbon world. Divestment needs to be the catalyst for the conversations that could lead to so much more.