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The investment opportunity

This content forms part of the DivestInvest guide.

What is the role of foundations on the “invest” side?

The DivestInvest pledge reminds us how “the escalating climate crisis will impact the programs of all philanthropic institutions, not just those focused on the environment and health.” In other words, to invest in climate solutions is both a practical and strategic way to strengthen and support your grantmaking across a wide spectrum of issue areas.

What do we mean by climate solutions? Examples might include large scale or community renewables, emission reduction technologies, mass transport, water management, Indigenous savanna burning, sustainable food, forestry and agriculture, green property or resilient infrastructure.

Actively investing in solutions to climate change is equally as important as withdrawing capital from fossil fuels if we are to achieve climate stability for our planet. This is why signatories to Divestinvest commit to allocate at least five per cent of their portfolio assets to areas such as renewable energy, energy efficiency, clean technology and energy access.

Clean energy is now commercially competitive. This turning point was achieved even before the game-changing Paris Agreement delivered much awaited certainty to global investment markets with the introduction of frameworks and timelines for measurable action on climate change. Add to this the world’s love affair with energy efficiency, change in China driven by severe urban pollution problems, citizen action for energy independence and the promise of technology without limits, it would appear the perfect storm for environmental investing has arrived.

In Australia, environmental markets are taking shape again after almost a decade of political uncertainty around climate change. Environmental investment pipelines are being fostered by investment firms and new initiatives are ushering environmental solutions through the incubation stage to investment readiness, scaling-up and commercialisation.

This new landscape provides a once in a lifetime opportunity for foundations and individual philanthropists to leverage change where it is most needed – in capacity building or other incubation assistance for promising, green enterprises, in helping businesses become investment ready, in shifting significant capital to commercialise large-scale ventures and the many other opportunities in between.

The rise of renewables

2015 produced a new record for global investment in renewable energy. Excluding large hydro-electric projects, investments in renewables was $285.9 billion, a figure much boosted by China increasing its investment by 17 per cent to $102.9 billion, or 36 per cent of the global total, and India raising its investment by 22 per cent to $10.2 billion. This global figure is more than double the investment in new coal and gas generation in 2015, estimated at $130 billion.

Figure 1 illustrates specific examples where renewables can now outperform fossil fuels.

Figure 1
Levelised cost of energy. Source: Bloomberg New Energy Finance, 2016.
Figure 1 Levelised cost of energy. Source: Bloomberg New Energy Finance, 2016.

“The race for renewable energy has passed a turning point”, stated Bloomberg Business in April 2015 “The world is now adding more capacity for renewable power each year than coal, natural gas, and oil combined. And there’s no going back.” See Figure 2.

Figure 2
Power generation capacity additions (GW) worldwide. Source: Bloomberg New Energy Finance, 2015
Figure 2 Power generation capacity additions (GW) worldwide. Source: Bloomberg New Energy Finance, 2015

The world is now adding more capacity for renewable power each year than coal, natural gas, and oil combined.

And there’s no going back.

Policy statements

Reading a range of policy statements is a good way to see how others approach the re-investment of funds into clean energy and low carbon opportunities, when fossil fuel related investments have been divested from the portfolio. Sample statements and some specific examples from organisations illustrate different approaches to consider.

Clean energy commitment

Sample statements

  • DivestInvest Philanthropy pledge: “We are foundations divesting from fossil fuels and switching to clean energy investments…in the next five years, we will invest at least five per cent of our portfolio into climate solutions defined as renewable energy, energy efficiency, clean technology and clean energy access.”
  • Divest Fossil Fuels Australia pledge: “We pledge to divest from all direct investment in the prospecting, extraction, transport, sale and the burning of fossil fuels (for electricity production) and will actively support the development of renewable energy alternatives and energy efficiency solutions to reduce fossil fuel dependency.

Specific examples

  • Rockefeller Brothers Fund: “In early 2010 we went to the board with a proposal that we set aside 10 per cent of the total value of our assets at the time. The 10 per cent equated to about $86 million and we were looking for ways of proactively investing those assets in market rate investments that would support our mission, primarily in the areas of clean energy, new technology and other business strategies.” Stephen Heintz, President
  • AXA: “Chief Executive Officer Henri de Castries said he’s working to sell 500 million euros ($702 million) of coal assets and triple ‘green investments’ to 3 billion euros by 2020.”
  • Allianz: “In the medium-term, we want to at least double our [2.5 billion euro] investments. Given unequivocally positive signals and reliable framework conditions for long-term investors, climate protection is unlikely to fail because of a lack of funding” Oliver Bäte, CEO

Opportunities in Australia

There is significant hunger for solution-based investments in Australia. Signatories to Australia’s version of DivestInvest called Divest Fossil Fuels Australia actively pursue climate solution opportunities, although investing has been difficult as Australia’s environmental markets are relatively underdeveloped due largely to policy stagnation. There has, however, been demonstrable change following the Paris Agreement coming into force. New opportunities are rapidly becoming available to different types of investors, enabling Australian signatories to engage more actively in emerging environmental markets.

In 2016, AEGN launched a new initiative to help members to gain the confidence, knowledge and networks to navigate these growing environmental markets. The Environmental Impact Investing Group provides opportunities for members to exchange information and due diligence knowledge, to meet in person to learn from experts, review new offerings and share networks. The group is open to all foundations.

Divestment gathers speed

Rockefeller brothers fund talks about its divestment decision
Four Corners, 15 June 2015

Valerie Rockefeller Wayne, Chair, Rockefeller Brothers Fund, “With fossil fuels, we want to get out as quickly as possible for financial reasons, as fast as is prudent the value of coal stock in the United States has gone down 60 to 90 per cent.

This is a global phenomenon if you look over the last five years, the S&P 500 has gone up by 76 per cent. The value of coal stocks has gone down by 71
per cent, according to the index of the leading coal companies. So you’ve lost a lot of money if you’ve been in coal. To put more money into something that you know is damaging the environment is not just denying science, it’s denying the data.