Category:Perspective7 min read
Racing to Net Zero
A $3 Billion Endowment Gets Even Cleaner and Greener
Electric bus manufacturer Proterra is among the McKnight Foundation’s many impact investments. Video credit: Proterra
This piece originally appeared in Confluence Philanthropy and is reprinted here with full permission.
When Hurricane Ida ripped through southern Louisiana, the communities hit hardest by the storm were left without power—no air conditioning, fans, refrigerators, lights, or life-saving equipment. New Orleans solar company PosiGen stepped in to deploy 12 solar-powered stations with their partners at disaster supply sites, community centers, fire stations, and churches in the area to support local residents. If it’s up to forward-thinking PosiGen, their many low-income solar customers won’t be in the dark when the next climate disaster strikes—they’re also working to install 300 solar-powered batteries at homes in the area.
The devastating impacts of climate change—from hurricanes and floods to droughts and fires—have signaled code red for the planet. That is why McKnight has been investing in companies like PosiGen for years, aligning our endowment with our mission to reduce greenhouse gas emissions at the speed and scale demanded by the climate crisis.
PosiGen and Footprint Project deploy solar power to Hurricane Ida Victims in Louisiana. Photo credit: Footprint Project
But investing in a sustainable future does not need to come at the expense of financial performance. “We have seen how bold, market-rate investments in climate solutions have spurred innovation, grown our endowment, and allowed us to increase our grantmaking,” said Ted Staryk, a longtime McKnight board member and chair of its Mission Investing Committee.
“We have seen how bold, market-rate investments in climate solutions have spurred innovation, grown our endowment, and allowed us to increase our grantmaking.”
—TED STARYK, BOARD MEMBER
Two of McKnight’s most notable investments are with Mellon and Generation.
With a $100 million investment in 2014, McKnight partnered with Mellon to create a broad Carbon Efficiency Strategy fund that tilts our dollars toward more carbon-efficient companies. With about 1,000 holdings, the fund reduces the carbon intensity of our investment by 50% compared with its benchmark, all while outperforming the benchmark financially. A win-win.
Delivering even greater returns, Generation’s Global Equity Fund is the best performing equity fund in the McKnight endowment, spurring the foundation to increase our initial 2014 investment of $25M by $50M in 2017 and again in 2018. The fund explores the economic opportunities arising from a planet under pressure, capitalizing on trends such as the growth of cities, water scarcity, and the imperative to stop climate change. It identifies well managed, well priced companies that will thrive in the long term. This was McKnight’s first “impact” manager to graduate to a full allocation in the endowment.
McKnight invests in Partner Community Capital, which finances small businesses who protect natural resources in Appalachia. Photo credit: FLS Energy
Private foundations in the United States are required by law to spend at least 5% of their endowment each year. While foundations typically use grant dollars to support climate solutions, the remaining 95% of an endowment too often goes untapped—a missed opportunity to invest in change.
In McKnight’s case, over 40% of its $3 billion endowment has some mission alignment, and the organization’s impact investments are uncapped, with $500 million committed to public and private impact investments that provide the ideas, technology, software, and services to decarbonize the economy.
Expanding on this track record of experience, in October 2021, the McKnight Foundation committed to achieving net zero greenhouse gas emissions across its $3 billion endowment by 2050 at the latest. McKnight is the country’s largest private foundation to pursue a net zero endowment.
This announcement comes at a time when people across the globe are experiencing first-hand the devastating impacts of climate change and scientists agree that we must take dramatic action to limit global warming to 1.5°C by 2050. McKnight’s approach to eliminate our emission impact across our portfolio means that we are employing the vast majority of our considerable resources in the effort to avoid the worst impacts of climate change.
In 2019, McKnight’s portfolio generated 1,869,495 MW of renewable energy. Photo credit: Shutterstock/Oleksii Sidorov
Net zero is a comprehensive strategy to reduce greenhouse gas emissions across the entire investment portfolio—including the fossil fuel sector—while also making new investments to build a carbon-free economy. This rigorous approach requires scouring every corner of the endowment for emissions, discontinuing investments in high-emitters, such as any remaining fossil fuel investments, working with our more than 75 fund managers to decarbonize their holdings, and regularly communicating our progress.
“Net zero is a comprehensive strategy to reduce greenhouse gas emissions across the entire investment portfolio—including the fossil fuel sector—while also making new investments to build a carbon-free economy.”
—ELIZABETH MCGEVERAN, DIRECTOR OF INVESTMENTS
In 2015, McKnight was among hundreds of investors calling for an ambitious agreement in the lead up to COP21 in Paris. Since then McKnight has broadly expanded its impact investments and doubled its climate-related grantmaking. Net zero is yet another moment for the Foundation to lead by example—and to share our experiences.
With COP26 underway in Glasgow, we call on all institutional investors to join us in boldly meeting this important moment on climate change. Science is clear about the economy we must create in order to thrive, and every endowment dollar offers immediate and powerful opportunities to advance a low-carbon future together.