By Sarah Wood Kearney, Executive Director, PRIME Coalition & Visiting Researcher, MIT Sloan School of Management, 2014 Resonate Award winner | 16 May 2014
Over the past few weeks, President Obama unleashed a public-relations-onslaught against climate change by touting highlights from the National Climate Assessment, which was released earlier this month to “summarize the impacts of climate change on the United States, now and in the future.”  Unsurprisingly, he’s already bumped up against political resistance because climate change is an externality that’s particularly tricky for government intervention: its consequences are long-term and widely distributed, but necessary actions to address its causes – primarily greenhouse gas emissions from the energy sector – are immediate and concentrated.
Given these constraints on government intervention and the urgency of necessary action, it’s time to look beyond government as a panacea. But which nongovernmental groups have the power to make a climate impact at scale and yet are not already empowered to fire on every climate-change-fighting cylinder?
The philanthropic sector – private individuals as well as private, corporate, and community foundations – is one such group: its actors remain largely ignored in our climate rhetoric, but they are uniquely suited to address climate change in ways other asset owners cannot. Philanthropists and foundations are not constrained by election cycles, for-profit fund life cycles, or shareholder demands. In fact, foundations’ very-long-term charitable mandates run in concert with the intergenerational effects of climate change. Unfortunately, we’re not sufficiently providing philanthropic decision makers with the information or tools they need to succeed in drastically reducing the rate of global greenhouse gas emissions.
What are the nonprofit and for-profit options for charitable individuals and organizations that desperately desire climate change mitigation? Where have charitable dollars gone in the past? Where could they go in the future so we don’t stand still and waste another decade waiting for improbable policy solutions? What are the capital gaps that cannot be filled by government or for-profit financiers that serve as barriers to climate change mitigation at scale?
I started asking these questions as soon as I was asked to serve as Executive Director and Trustee of the Chesonis Family Foundation in 2007, a few years before cap-and-trade legislation was defeated in the Senate in 2010. Of course there is a wide and diverse range of options available to different types of philanthropic actors, including diverse:
- nonprofit and for-profit tools (e.g. grants, program-related investments, mission-related investments, screened funds)
- charitable end goals (e.g. poverty alleviation, environmental conservation and protection, advancement of science, economic development, lessening the burdens of government)
- activities (e.g. policy advocacy, activism, technology innovation or deployment, education)
But after all these years of learning and observing the changing tides of public and private investment, there’s one pervasive capital gap I find most alarming: patient, early-stage support for transformational energy technology innovation.
By 2050 we’ll have ten billion people on Earth, each consuming at least four times as many resources as we consume per capita on average today. Not only do we desperately need to deploy the cost-competitive clean energy products currently available, but we also need to develop the breakthrough technologies of tomorrow – ideas that could be as transformative as the invention of the steam turbine in the 19th century or the solar cell in the 20th. The targets are clear: carbon-free baseload power, cost-competitive energy storage, carbon- and conflict-free transportation fuels, and ultra-efficient energy harvesting from renewable sources. There’s no shortage of ideas bubbling out of university and national labs, corporations and garages.
What’s missing is the patient, early-stage capital and expert support that can translate the most impactful energy projects into lasting companies for real-world impact at scale. Venture capitalists aren’t funding swing-for-the-fences opportunities in these areas because the timeframe for returns is too long and oftentimes the capital requirement is too high. Long-term investors in instruments like municipal bonds are absent because the ventures are too risky. And the U.S. government can’t carry the burden for fear of “picking winners,” in addition to widespread budgetary constraints.
Admittedly, one-time snapshots belie macro trends, but it’s important to note that less than 4% of venture capital went into cleantech ventures during the first quarter of 2014: $357 million compared to $1 billion disbursed to biotech ventures and $4 billion put into software companies. Importantly, deal volume in cleantech decreased more than 40% over the first quarter of 2013 as venture capitalists move to later stages and further away from assuming early-stage technology risk.
Rather than argue that our venture capital industry is broken and needs to be “fixed,” I posit that the philanthropy and impact investment communities must come together to create new ways to develop, deploy, and scale the innovations most critical to society. Patient investors could de-risk early-stage technology ventures so that traditional financiers will follow – to ensure ventures’ products actually enact large-scale climate impact by competing on price without subsidy. But we’re not giving patient investors the information or resources they need to do so today.
As an example, not-for-profit funding from charitable individuals and foundations already generously supports science and engineering research within universities. Philanthropists contribute $6 billion annually to the top fifty science and engineering universities in the U.S., which covers 30% of those institutions’ research expenditures and equates to 40% of the amount the federal government gives to the same institutions. But only 4% of philanthropists’ university funding went to energy-related research between 1999-2009. And none of the philanthropists’ contributions went to support the translation of ideas from university labs toward real-world impact in the commercial marketplace.
Most philanthropists still don’t know that the capital gap for early-stage energy innovation exists, nor that family and corporate foundations have program-related investments as a tool in their grantmaking toolbox to fill this gap.
Here’s my big idea: spread the word about capital gaps in energy and environment finance, convene climate-interested foundations and impact investors around those issues, simplify financial transactions for them, and give them all the resources they need to be effective investor-givers by harnessing the deep expertise that’s already embedded in our for-profit financial community and within government agencies. Importantly, this includes creating space to define and understand impact on the backend by facilitating conversations about climate mitigation, adaptation, energy poverty, and natural resource preservation – big problems that are interconnected and difficult to untangle.
Together we can provide critical resources purpose-built for private, corporate, and community foundations as well as charitable private inviduals so they can start to fill the capital gaps to address climate change. The bad news is that there are large cultural barriers and information asymmetries that make it difficult for foundations to find, meet, and invest in energy companies and to know with confidence that those entrepreneurs will not be supported otherwise. The good news is we don’t need regulatory change or Congress approval to make it happen.
 United States. National Climate Assessment. U.S. Global Change Research Program. N.p., 6 May 2014. Web. 7 May 2014.
 Cleantech MoneyTree Report: Q1 2014. PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters. Web. May 7, 2014. <http://www.pwc.com/us/en/technology/publications/moneytree-cleantech-venture-funding-report.jhtml>
 Murray, Fiona E. Evaluating the Role of Science Philanthropy in American Research Universities. National Bureau of Economic Research, June 2012. http://www.nber.org/papers/w18146.