Confluence Philanthropy convened twelve of its foundation and family office members along with their investment advisors for a two-day Net Zero Intensive at Amalgamated Bank in New York in early February. Our goal was to explore the challenges facing asset owners that want to commit to a Net Zero investment strategy and accelerate the transition to a low-carbon and just economy. Through facilitated seminar sessions, we learned from a range of experts and asset owner peers, shared experiences and sought to better define Net Zero.
Here are my takeaways from co-facilitating the two days:
Strategy Before Data
While many asset owners see data as a prerequisite to action, it is clear that setting a strategy and picking specific pathways should come first. The need to understand the real world impacts rather than just the carbon footprint of your portfolio is critical. A mathematically correct solution may create real-world harm.
Size, Time Horizon and Governance
We heard from two large asset owners who have the long time horizons and governance structures to directly transition large portfolios to Net Zero. Other asset owners may need to create impact through a chain of advisors, investment managers, companies and communities. As we work toward achieving Net Zero, the investment levers for a $50 million foundation are different than a $50 billion institution. The importance of time horizons comes up when investors balance investing in early stage climate solutions that have the possibility of high positive climate impacts in the future with investing in current emission reductions.
Importance of Magnitudes
As part of the presentation of the En-ROADS climate simulator, it was interesting to learn the effects of specific interventions and scenario assumptions. We heard how this tool has been very powerful to demonstrate to public and private officials about the effects of specific policy actions. For example, U.S. governors can dramatically reduce carbon through energy efficiency codes in state-owned properties or the building stock throughout the state.
Dynamic Policy Environment
Climate investors must work in a dynamic scientific as well as policy environment. As climate investing comes under increased scrutiny, asset owners must consider how to engage through policy, lobbying and legal channels. The emergence of climate litigation against high emitter companies has increased the anti-ESG pushback. This pushback against climate investing is coming from players with specific rationales and goals - not just the fringe. Climate investors need to share their approaches and stories. U.S. bipartisan climate policy may be possible if moderate and conservative voices that want climate action are supported. In the current political environment, the messenger can matter more than the message.
Shareholder Engagement
Given that world emissions are concentrated in large global corporations, shareholder engagement remains an essential lever to reach Net Zero. For example, the Climate Action 100+ (now 160) generates 78% of world emissions. Specific campaigns are pushing high emitters to create Climate Transition Plans and the overarching need for Scope 3 emissions reporting.
Climate Justice
At the center of the climate challenge is the fact that those who caused the problem are not the communities that are bearing the most cost. A Just Transition will require deep relationship building and listening with climate vulnerable and frontline communities. Climate justice and investing will sometimes be at odds, but a climate transition is not possible without working with indigenous people given their central role as stewards of the earth.
Details Matter with Carbon Offsets
Carbon offsets play a role in a Net Zero strategy after an emitter has reduced its own carbon footprint. It is essential to distinguish between the voluntary and regulated carbon markets and to understand carbon credit characteristics such as additionality, permanence and verification. There may be important co-benefits in carbon credits such as biodiversity and community impacts.
Next Steps
In closing, the participants shared what they wanted to bring back to their own work and how their advisors could share best practices going forward. While concerns about data overload, complexity and greenwashing remain, Net Zero investment should be driven by a clear strategy that reflects current reporting data and climate science.
--
Steven Godeke, Godeke Consulting
Disclaimer: Confluence blogs may contain external links to other resources and comments or statements by individuals who do not represent Confluence Philanthropy, Inc. Confluence Philanthropy, Inc. makes no representation whatsoever regarding the content that you may access as a result of our blog, nor the statements of any third parties whose comments may be expressed therein.
