{"id":56299,"date":"2022-10-24T10:11:23","date_gmt":"2022-10-24T15:11:23","guid":{"rendered":"https:\/\/www.mcknight.org\/?p=56299"},"modified":"2025-08-11T10:59:33","modified_gmt":"2025-08-11T15:59:33","slug":"investing-in-a-climate-forward-future","status":"publish","type":"post","link":"https:\/\/www.mcknight.org\/en_ca\/news-ideas\/investing-in-a-climate-forward-future\/","title":{"rendered":"Investing in a Climate-Forward Future"},"content":{"rendered":"
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McKnight Reports on One Year of Action Toward Net Zero<\/em><\/h3>\n

When Hurricane Ian tore through southwest Florida on September 28, 2022, devastating communities with winds over 100 mph and a record-breaking storm surge, millions were left without power. But throughout the storm, the lights stayed on in the nearby town of Babcock Ranch<\/a>, which was built to withstand extreme weather and flooding, and is powered fully by a local solar farm and battery storage system. The community is a model for climate resiliency\u2014a place where careful planning and strategic investments made all the difference.<\/p>\n

As the climate crisis reaches more communities around the globe with greater intensity, we have a window of opportunity to adapt our practices and invest in a resilient future where people and planet thrive. In the face of devastating climate-related impacts, institutional investors like the McKnight Foundation have a responsibility and an opportunity to squeeze climate-harming pollution from our endowments and ambitiously invest in high-performing climate and clean energy solutions.<\/p>\n

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“Our endowment is a critical tool for achieving McKnight\u2019s bold climate mission, and we hope that by sharing our actions and what we\u2019ve learned it will inspire others to make similar commitments.”\u2014ELIZABETH MCGEVERAN, DIRECTOR OF INVESTMENTS<\/cite><\/p>\n<\/blockquote>\n

In October 2021, <\/strong>McKnight pledged to reach net zero<\/strong><\/a> emissions across our $3 billion endowment by 2050 or sooner. In our first year of racing toward net zero, our Investment Team:<\/strong><\/p>\n

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  1. Established<\/a> a greenhouse gas emissions baseline across asset classes<\/li>\n
  2. Invested<\/a> further in new and innovative climate-forward strategies<\/li>\n
  3. Engaged<\/a> fund managers about their plans to decarbonize their portfolios<\/li>\n<\/ol>\n

    Our endowment is a critical tool for achieving McKnight\u2019s bold climate mission<\/a>, and we hope that by sharing our actions and what we\u2019ve learned, it will inspire others to make similar commitments. Investors must anticipate changes in future markets, but our investment decisions today create those same markets tomorrow. In this way, we have enormous power to create change when we invest. As money flows toward climate-friendly investments and away from heavy emitters, we will accelerate the transition to a low-carbon economy.<\/p>\n\n\t\t<\/div>\n\t<\/div>\n

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    McKnight Foundation Net Zero Strategies<\/span><\/h4>\n\n\t\t<\/div>\n\t<\/div>\n
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    LIMITING EMISSIONS<\/p>\n

    Actively reducing fossil fuels and using screens to minimize highly concentrated exposures<\/p>\n<\/div><\/div><\/div><\/section><\/div><\/div><\/div>

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    PORTFOLIO Positioning<\/p>\n

    Finding opportunities to further target climate-aware investments<\/p>\n<\/div><\/div><\/div><\/section><\/div><\/div><\/div>

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    CLIMATE Investing<\/p>\n

    Investing in solutions that accelerate the transition to a low-carbon economy<\/p>\n<\/div><\/div><\/div><\/section><\/div><\/div><\/div>

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    ENGAGEMENT & Advocacy<\/p>\n

    Engaging with companies, regulators, and investors to move the needle on climate<\/p>\n<\/div><\/div><\/div><\/section><\/div><\/div><\/div><\/div><\/div><\/div><\/div>

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    Establishing a Comprehensive Baseline<\/h3>\n

    Back in 2014, McKnight conducted its first carbon emissions assessment of our public equity portfolio, finding 8% lower carbon intensity than benchmarks.<\/strong> We only analyzed public equity given data and transparency limitations. Following that first look with Imprint Capital<\/a>, we decarbonized ambitiously, investing in strategies better positioned for the transition with more like-minded firms and implementing screens to eliminate companies with coal and tar sands reserves. By 2021, over 40% of the endowment had mission alignment and $500 million was invested in a broad climate-solutions-focused portfolio.<\/p>\n

    After making our net zero pledge, we immediately set to work creating a 2021 baseline analysis on the carbon exposure of our entire endowment.<\/strong> Partnering with the Mercer Analytics for Climate Transition (ACT) team, we learned that the McKnight endowment\u2014across public equity, fixed income, absolute return, and private investments\u2014is well positioned for net zero compared with indices and peers, affirming our years of targeted investments to decarbonize.<\/p>\n

    We found that as of year-end 2021, McKnight Foundation\u2019s portfolio has 24% less carbon intensity than global equities.<\/strong> The analysis covers over 70% of the endowment with actual or reasonably estimated data, and we\u2019re hopeful to have near 100% by the end of 2022. Gathering baseline emissions data remains a challenge in emerging markets, hedge funds, and private markets, particularly venture capital. We\u2019re optimistic that developments like this year\u2019s proposed SEC rules on climate-related disclosure will help provide investors with more uniform, reliable information.<\/p>\n

    Digging deeper into the analysis, we learned that the main drivers of portfolio emissions in McKnight\u2019s endowment come from utilities, airlines, and materials.<\/strong> Among our public equity holdings, the most intense emission assets weigh only 0.6% in market value, but account for 21% of carbon intensity. Knowing this data allows us to prioritize what can be shed to reduce emissions quickly, and how we can engage with managers and companies more thoughtfully.<\/p>\n

    We also discovered that 35% of our portfolio is already aligned with our net zero goal.<\/strong> Counting impact and aligned investments is always challenging, even for our own portfolio. The Investment Team is now classifying all our strategies into four categories to help assess current and potential net-zero alignment:<\/p>\n\n\t\t<\/div>\n\t<\/div>\n\n\t

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    McKnight Foundation Portfolio Net Zero Alignment, 2021<\/h4>\n\n\t\t<\/div>\n\t<\/div>\n
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    {\"type\":\"pie\",\"data\":{\"labels\":[\"Climate Solutions\",\"Climate Aware\",\"Climate Agnostic\",\"Traditional\"],\"datasets\":[{\"backgroundColor\":[\"rgba(121,153,0,0.9)\",\"rgba(39,153,137,0.9)\",\"rgba(125,160,195,0.9)\",\"rgba(136,136,139,0.9)\"],\"hoverBackgroundColor\":[\"#799900\",\"#279989\",\"#7da0c3\",\"#88888b\"],\"data\":[17,18,10,55],\"borderWidth\":0}]},\"options\":{\"animation\":{\"duration\":2000},\"maintainAspectRatio\":true,\"cutoutPercentage\":80,\"circumference\":6.28318530717958623199592693708837032318115234375,\"legend\":{\"display\":false,\"position\":\"bottom\",\"labels\":{\"usePointStyle\":false,\"padding\":20,\"boxWidth\":12,\"fontSize\":12,\"fontColor\":\"#3a3a3a\"},\"onClick\":null},\"tooltips\":{\"enabled\":true,\"bodySpacing\":8,\"titleSpacing\":6,\"cornerRadius\":8,\"xPadding\":10},\"noTsep\":false}}<\/div>\n\t\t
    [\"Climate Solutions: {y}%\",\"Climate Aware: {y}%\",\"Climate Agnostic: {y}%\",\"Traditional: {y}%\"]<\/div>\n\t\t\t\t\t\t\n <\/canvas>\n\t\t
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    Climate Solutions (17%)
    \n<\/span><\/strong>Investments in managers, products or services that are actively solving for climate change. These may also provide negative emission exposures or offsets.<\/p>\n

    Climate Aware (18%)<\/span>
    \n<\/strong>Investments where the manager has an active thesis, or utilizes tools, that consider the materiality of climate change.<\/p>\n

    Climate Agnostic (10%)<\/span>
    \n<\/strong>Impact investments that are not focused on climate but are closely aligned with McKnight\u2019s broader mission.<\/p>\n

    Traditional (55%)<\/span>
    \n<\/strong>Conventional investments or managers who lack an integrated approach to ESG.<\/p>\n\n\t\t<\/div>\n\t<\/div>\n<\/div><\/div><\/div><\/div>\n\t

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    What\u2019s next?\u00a0<\/strong>After completing our baseline emissions assessment at the end of 2022, we will set and disclose short and medium-term reduction targets for 2025 and 2030 that will demonstrate ambitious momentum toward our goal of achieving net zero by 2050 or sooner. Goals will allow us to assess whether we are on track.<\/p>\n\n\t\t<\/div>\n\t<\/div>\n

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    Making New Investments Toward Net Zero<\/span><\/h3>\n

    McKnight learned early on in 2014 when we began our Impact Investing program that the climate and clean energy investment manager pipeline was strong and attractive and that other managers were increasingly integrating a climate perspective. We believe our net zero portfolio is aligned with commercial innovation and strategic investment opportunities for profit and planet.<\/span><\/p>\n

    In the last year we hired several new public equity managers that will help us reduce emissions, and below are three notable examples.*<\/strong><\/span><\/p>\n\n\t\t<\/div>\n\t<\/div>\n<\/div><\/div><\/div><\/div>

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    Acadian: Sustainable Global Equity Fund<\/h2>

    Using natural language processing to harness growing climate disclosure and other unstructured data allows them to create AI signals in their model and set a net zero glidepath.<\/p><\/div><\/a><\/div><\/div><\/div>

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    Ninety One: Global Environment Fund<\/h2>

    Focused on renewables, electrification, and efficiency sectors. Includes Scope 3 emissions measurement. For investment, 50% of a company\u2019s revenue must contribute to decarbonization.<\/p><\/div><\/a><\/div><\/div><\/div>

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    HitecVision: New Energy Fund<\/h2>

    Investing in companies commercializing technology on the leading edge of the energy transition, including onshore and offshore wind, district heating, and carbon capture.<\/p><\/div><\/a><\/div><\/div><\/div><\/div><\/div><\/div><\/div>

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    See all Impact Investments<\/a><\/div>
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    Engaging with Fund Managers<\/h3>\n

    As an asset owner, our net zero commitment is a signal to current and future fund managers and markets of the urgency with which we are prioritizing this massive economic transition.<\/strong><\/p>\n

    These signals help fund managers better advocate for improved transparency and data collection within their firms and portfolio companies while creating incentives for them to develop \u00a0products that meet net zero requirements.<\/p>\n

    Over the last year, we engaged our more than 75 fund managers in some way about our net zero ambitions and their fit for our portfolio. By interviewing some of our traditional private equity managers, we discovered a larger number than we expected are planning to assess greenhouse gas emissions and position portfolio companies for disclosure in the future, although there are varying degrees of readiness.<\/p>\n

    In general, Europe-based managers are more willing and experienced with net zero reporting and commitments. Among those we interviewed, some private equity managers are providing interesting financial incentives to their portfolio companies to drive decarbonization or harnessing data to create opportunities for efficiencies.<\/p>\n

    Beyond fund managers, we also seek opportunities to join other asset owners in shaping regulation, voting annual proxies, and taking collective action through organizations like Ceres<\/a>, CDP<\/a>, and Climate Action 100+<\/a>.<\/p>\n\n\t\t<\/div>\n\t<\/div>\n<\/div><\/div><\/div>

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    Net Zero Team<\/h4>\n\n\t\t<\/div>\n\t<\/div>\n\n
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