Divestment from fossil fuels accelerates in philanthropy

A movement to divest from fossil fuels is gaining support among foundations as activists demand that funding be diverted from coal, oil and natural gas.

The activists’ call to the charitable world is simple: Ditch fossil fuels and direct your investments to climate-friendly businesses and funds.

The global divestment campaign has sought commitments from universities, businesses and others. Today, two of the biggest names in philanthropy – the Ford and MacArthur Foundations – are redirecting their investments away from fossil fuels, a move that leaders of the divestment movement hope will prove to be a tipping point for the charitable world.

“We call on governments and businesses to act on climate aggressively and at the height of the science,” said Ellen Dorsey, executive director of the Wallace Global Fund and leader of Divest-Invest philanthropy, which pushes the philanthropic community to get rid of its investments in fossil fuels. “Why don’t we ask ourselves if we are doing this? “

Ford and MacArthur’s announcements came ahead of the UN climate summit in Glasgow, where activists, policymakers and scientists are pushing for far-reaching action on climate change. The two foundations join nearly 200 charities and businesses that manage investments for wealthy families who have pledged to divest, according to Divest-Invest Philanthropy.

“I am glad that we have finally been able to reconcile our financial imperative with our moral imperative as a foundation,” Darren Walker, president of the Ford Foundation, told The Associated Press.

About $ 1 trillion is in endowments from private foundations, which are only required to pay out 5% of their assets each year. The rest is invested for growth. Traditionally, the two sides of their operations have been viewed as separate: grants have been made to advance the mission of foundations. Foundation fund managers, on the other hand, were looking for high investment returns to maintain the financial health of their organizations.

But in recent years, activists have argued that it is hypocritical for some foundations to fund initiatives that tackle climate change while potentially investing in fossil fuel-related companies. According to the ClimateWorks Foundation, global philanthropic funding for climate change mitigation stood at $ 6-10 billion in 2020, or less than 2% of global donations.

Critics of divestment counter that such changes could hurt investment returns and prevent foundations from maintaining the size of their endowments, thereby hurting their goals. Ivo Welch, professor of finance at the University of California at Los Angeles, says foundations that divest won’t have much of an impact on the market and may even lose any leverage they might have on companies of fossil fuels.

“I think it’s primarily a public relations exercise,” Welch said. “Suppose we could really bring the fossil fuel companies to their knees, and they would be bankrupt now. The world would completely collapse. They can’t want it.

That said, many foundations see their shift from fossil fuels as part of a larger effort to incorporate the philosophies that underpin their giving into their investments.

“It was long overdue,” Walker said. “I don’t think the Ford Foundation deserves to be commended for doing the right thing.”

The Ford Foundation, which has $ 16 billion in assets, said in a statement last month that only 0.3% of its endowment is directly invested in companies related to fossil fuels. He said he had not made any such investment since 2013 and would not do so again.

Instead, the foundation says it will invest in funds “that face the threat of climate change and support the transition to a green economy.” Within five years, Walker said, the organization will also end its indirect investments in fossil fuels through partnerships with private equity funds.

For outside observers, it has often been difficult to determine where Ford and certain other foundations have directed their investments. Some have been transparent about the destination of their investments. Others provide little information apart from the number of assets they hold in various investment categories.

John Seitz, a former Wall Street portfolio manager who heads FoundationMark, which tracks the investment performance of private foundations, noted that foundations are limited in what they can share if they have invested in entities, such as hedge funds, which are generally not transparent.

The Ford Foundation’s 990 forms, which it must file with the IRS each year, do not give a clear picture of where its investments are going. Walker says many of Ford’s investments are in private equity and hedge funds rather than directly in companies. He says the foundation will seek to be more specific about the funds in which it invests.

Another factor in the lack of transparency between foundations, Seitz suggested, is the desire to avoid outside scrutiny.

“It tends to create a lot of headaches,” Seitz said. “Because you’re just going to be questioned with every move you make. “

The PA has contacted a handful of important foundations that have not made a commitment to divest. Spokesmen for three of them said they were reviewing their investment strategy. One of them did not respond to an email requesting comment. Two others refused to comment on the subject.

The MacArthur Foundation, an $ 8 billion organization known for its “engineering grants,” pledged two years ago to halt new investment in oil and gas. He went further in September, saying he would switch to US index funds that exclude fossil fuel companies. And it aims to change its global index funds to do the same within a year.

John Palfrey, the foundation’s chairman, didn’t say how much money is involved, but said the move was in “the billions.”

“Our goal is to be on track to have no fossil fuel related businesses in our portfolio over time,” he said.

Palfrey says the foundation had been working for a few years to divest more of its portfolio from fossil fuels. Recently, he chose to announce his plans in part to give momentum to the effort to tackle climate change at the United Nations climate conference.

Last month, the McKnight Foundation, a family-owned foundation based in Minnesota, pledged to achieve zero net greenhouse gas emissions on its $ 3 billion endowment by 2050.

Some other foundations have quietly diverted their investments from fossil fuels.

Don Chen, chairman of the Surdna Foundation, which has around $ 1 billion in assets, says the foundation has cut back on investments in fossil fuels over the past decade and plans to phase out more in the years to come. .

“I recognize the importance of using our public platform, our profile and also our influence to be able to join the chorus of people who are really trying to do more with our endowment assets,” Chen said.

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PA reporter Emma H. ​​Tobin contributed to this report.

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The Associated Press receives support from the Lilly Endowment for coverage of philanthropy and nonprofit organizations. The AP is solely responsible for all content. For all of AP’s philanthropic coverage, visit https://apnews.com/hub/philanthropy.

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About Christopher Easley

Christopher Easley

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