The Role of Philanthropy in Climate Action

PAUL SCHUSTER: This is 8 minutes. A podcast helping you understand the Energy and Climate Challenge in just a few minutes. I'm your host Paul Schuster. The Inflation Reduction Act and Infrastructure Investment and Jobs Act both get a lot of attention for the amount of dollars that they've unlocked from the federal government towards climate action. So too do we hear about the investments being made at the state or municipal level or by VCs or private equity companies in trying to scale technologies for the energy transition. We don't hear about the impact that philanthropy has on climate action as much. But philanthropic dollars play a really important role in the capital stack, able to address certain issues and situations better than private or public funds. The problem? There's not enough charitable dollars actually moving into the sector given the challenge ahead of us. So today, I sit with Randall Kempner, senior advisor for the Aspen Institute, to discuss why philanthropy is so important in climate change and what's needed to further catalyze this important sector. 8 minutes. It's how long it takes the sun's race hit or about enough time to make that dunkin run for the first iced coffee of the season. Drop the episode for the ride and let's get it on.

PAUL SCHUSTER: Randall, welcome to the podcast.

RANDALL KEMPNER: Oh great to be here. Thanks for having me on.

PAUL SCHUSTER: Randall, I'm excited to dive into this and learn a little bit more about philanthropy. This is an area that I don't spend a lot of time in, even though I kind of consider myself a finance guy. I sit more on the private capital side of things, interested in learning a little bit more about the role of philanthropy and how it's actually being used to accelerate climate activity. But before we get into that, why don't we start with an introduction as to yourself and the Aspen Institute?

RANDALL KEMPNER: Sure. So I'm Randall Kempner and I am a senior advisor to the energy and environment program at the Aspen Institute. The Institute's been around since 1949 and it's a nonprofit committed to realizing a free, just and equitable society. And we do that through a whole variety of programs, including programs that focus on things ranging from sports and religion and business and philanthropy, international development. It's kind of got a little bit of everything. But the one that I am associated with now, as I mentioned, is the energy and environment program. And in particular, I focus on what we call climate smart money. So the intersection of climate change and investment, economic development and philanthropy.

PAUL SCHUSTER: Well, so let's take that as a segue into the role of philanthropy. And maybe you can give me and the audience a foundation as to why philanthropy is important within climate action.

RANDALL KEMPNER: Sure. The reality is of all the things you mentioned, government dollars, investment dollars, and philanthropic dollars, the philanthropic dollars will be and have been the smallest financial piece of that pie. However, philanthropy can play a particularly important and catalytic role in that philanthropy is meant to take more risks than either the other two. Philanthropy has the ability to be very catalytic at early stages of new ideas and of organizations. Philanthropy also has a really important role to play in advocacy. So in funding the groups, the nonprofits that are on the Hill and DC and internationally find the influence, the types of policies that get enacted by the federal government. I'll pause here and say that the IRA is seen as a success by many philanthropists who invested millions of dollars in trying to help educate legislators about that and helping to get it passed. And I also feel like philanthropy could and should be doing a lot more than it is today to help scale solutions that may not have the same level of profitability that investors are seeking. The philanthropists have a wide range of motion, a wide range of potential actions that make them different from government and certainly make them different from private investors.

PAUL SCHUSTER: What's interesting, Randall, as you went through that was the role that philanthropy has and the type of investment that philanthropy can make versus the type of investment that federal dollars or governmental dollars can make versus private capital can make, especially as I think about it, I think about it from like scaling climate solutions, right? To your last point, even to your first point about the type of risk profile that philanthropy can take on, thinking about some of the new solutions that are emerging and evolving going forward, that risk profile that philanthropy has must be different than a venture capitalist or private equity group that's looking for a return on their investment whereas philanthropy may not be.

RANDALL KEMPNER: Well, philanthropy should be looking for a return. It's just a different type of return with philanthropic grant dollars, right? The stuff that you think of when you think of philanthropists and foundations, they should be seeking an incredibly high and powerful social return or environmental return, but not a financial. And so the reality is there are many climate solutions which do not offer the risk adjusted rate of return that private investors would want to see. Yet they could be incredibly important for helping us to reach our climate goals and to ensure that we don't have the worst impacts of climate change. So indeed, that is where my opinion, climate philanthropy should focus, like focus on the stock where the private investment and where the government isn't as much, but make sure that those things can be tested and start the scaling process. So perhaps they do get to the point where private investment makes sense, even given the profit motivations of most private investors.

PAUL SCHUSTER: So what's interesting is that that social return also applies to the things that you were talking about for around advocacy around community involvement around some of these other areas where it isn't necessarily trying to advance a technology per se, but trying to advance the broader ecosystem around climate action too. I imagine.

RANDALL KEMPNER: Yeah, absolutely. I mean, again, let's talk about the inflation reduction act. As you mentioned in the opening, the estimates are that that and some of the other federal legislation could lead to $500 billion or more of incentives flowing into communities and to investors and to individuals to take pro-climate actions, which could be buying EVs, which could be retrofitting your home, which could be installing new and better transmission lines. That's $500 billion dwarfs what American philanthropists are giving to climate right now. In fact, that $500 billion was approximately the entire amount of philanthropy in the United States. So the leverage you get by doing advocacy, if it works, is extraordinary. And philanthropists can do plain important role, not in direct lobbying. That's actually not allowed. The helping to educate and support organizations that are working with commerce.

PAUL SCHUSTER: So you touched on a little bit there in terms of the amount of dollars within philanthropy that are going to climate. How active i s the climate sector within the philanthropic world?

RANDALL KEMPNER: Yeah, unfortunately, not nearly active enough. So philanthropists in the United States and indeed globally give less than 2% of total philanthropic dollars to climate causes. So in the United States, according to McKinsey, it's actually closer to 0.5%.

PAUL SCHUSTER: Half a percent to climate-related causes.

RANDALL KEMPNER: Yeah, that's a 2020 number. I suspect that's gone up since 2020, but it hasn't gone up enough. And it's a little shocking, frankly, to me.

PAUL SCHUSTER: Why is it? Why is it so low?

RANDALL KEMPNER: Yeah, I think there's actually been some good work on this done by the Center for Effective Philanthropy, which did a survey in 2022 of about 188 US climate leaders, or, excuse me, US Foundation leaders. And interestingly, they found that 85% of those leaders said that climate was a top three issue facing the United States today. Yet only 33% of them would consider changing their strategy to focus on climate. So that disconnect kind of blew my mind, but credit to CEP, the Center for Effective Pjilanthropy Then the board has limited interest or willingness to address climate change. And then third, the problem is too big. So I am sympathetic to the last. I am not particularly sympathetic to the first two of those answers because as a foundation board chair myself, I know that missions can be changed. And I also know that board members can be educated by executive directors and by other groups to recognize the importance of this issue. Now the reality is climate is big and it's a honking, nasty, difficult systems issue that is going to require many different people using many different interventions in many different geographies for us to make a difference. So it's not what philanthropists generally like, which is I want to give away money and see my impact as soon as possible in a tangible way. Sadly, it's not that it's never going to be that, but that's still not a good excuse.

PAUL SCHUSTER: Interesting. I can certainly understand the problem is too big discussion. We get that regardless where you sit in the climate fight at times you get too overwhelmed with just how big of a challenge this really is. But the reality is that the philanthropic dollars, the way you've described it, provides some of that that grease, if you will, in the system to help to help move things along to the point where if we're not getting the advocacy and if we're not getting that risk profile and if we're not getting the flexible dollars in, it seems like we're not necessarily doing ourselves very much good either in terms of promoting climate action. Is there a disconnect here between kind of the local philanthropic dollars and this global issue that exists around climate change? To your point, people want to see their dollars in action. Are they more inclined to give it locally versus towards a global problem like this?

RANDALL KEMPNER: Yes. So in general, philanthropists are much more geographically bound than you might think. A very small percentage of US philanthropy goes to global causes of any sort. And the vast majority of it goes to local institutions, including your religious institution, including your local homeless shelter, your local hospital, your local private and public school foundations. That's where the vast majority of philanthropy goes. And even within the climate space, there is more going to a local climate justice organization typically than to an international one or a national one from climate funders. The good news is that there are ways of taking climate action via philanthropy that are locally based because almost every community has organizations that are involved in this. However, there is still a great need to fund the bigger broader initiatives that are going to bring together multiple communities either within the United States or across the globe to address both the need to mitigate climate change. So to find ways of reducing our greenhouse gas emissions, but also to accept the fact, unfortunately, that there are many places in the world that will need to adapt to climate change no matter what we do today. And those folks, particularly in emerging markets, are seeing extraordinarily little money from any of those sources, be it government, private sector, or philanthropy.

PAUL SCHUSTER: So despite the fact that the problem might be big, there are local solutions that we should be thinking about as well, then. They just may not necessarily be your local solution.

RANDALL KEMPNER: Right. And then I think in my dream world, right, we would recognize that the places that will be hurt first and worst are often places that we don't see. And those could be frontline communities within our own metropolitan areas. So places that are right next to petrochemical plants and other fossil fuel generated manufacturing in places where there's pollution that people don't go to because they don't want to be around polluted places. And then beyond that would be communities and things like small island states, which literally are in danger in some cases of being flooded forever in the next 20 or 30 years. And those kinds of places don't get enough attention from philanthropists. So I would say there's certainly a trend in philanthropy in the United States to try to better integrate equity concerns. And the ideas behind climate or environmental justice are definitely growing in many minds of philanthropists, particularly the institutional and family foundations that are bigger who recognize how important that is to actually having viable clients.

PAUL SCHUSTER: You mentioned earlier as well that part of the problem in terms of really activating the philanthropic dollars is just a board disconnect in terms of how the board is thinking about both their mission as well as the foundation's mission. Let's talk a little bit more about that. Why is that not? Why is that held back philanthropic giving?

RANDALL KEMPNER: Well, let me try to answer that this way. I don't think that most board members and sadly maybe most executive directors of foundations recognize how critical climate is going to be to the traditional areas of philanthropic focus. So a lot of philanthropic dollars in this country goes to education and health care at two religious institutions. A lot increasingly is going to homelessness and issues around housing. The thing is that almost any social issue you care about is going to be imperiled. It's going to be worsened by heat and by increased extreme weather. The two things which are happening already and are going to happen more as a result of climate change. So I'm jumping to the answer perhaps. I think the way you get board members involved is to help make the case that if you care about the health and well-being of your community, if the people in your community, you can't really do that effectively anymore if you're not at least considering the impacts of climate change on those people because in hotter weather, students don't perform as well. Some students who are living in low-income housing won't have air conditioning or won't have the sufficient heat that they need. And they're going to be at a disadvantage. Obviously, health care issues directly go up when you have greater pollution and greater heat. So we need to start making that translation so that board members can see the direct contribution of climate change to the ultimate philanthropic goals they have today. And I think once they see them, we're going to see more at least climate lens philanthropy if it's not directly going to climate organizations.

PAUL SCHUSTER: Yeah, I was having a conversation with my wife last night who's in a community foundation and manages their grants. And we were talking about how philanthropy writ large has really been focused on different verticals over the years and how the trend today and the evolution of philanthropy has really been to take more of a systemic approach and more of a participatory approach to understand how all these things are interconnected. And when we talk about food security, when we talk about health, when we talk about housing and climate, climate really umbrellas across all of these things in a way that you can't have a discussion around housing without having a discussion around climate as well. And what good housing looks like as it relates to climate mitigation and climate adaptation.

RANDALL KEMPNER: Absolutely. Your wife's really smart, Paul.

PAUL SCHUSTER: Oh, no, she is much smarter than I. I'll admit that in a heartbeat.

RANDALL KEMPNER: I'll broaden it a bit. I mean, I do think there are two issues which are cross-cutting themes that need to be considered no matter what kind of philanthropy you have. And one of them is climate and the other is social equity. And they need to ensure that no matter what we're doing, we think about the impacts on people and places which have the least. And philanthropy has historically not thought about those two things as cross-cutting issues. And I think that the most successful philanthropists going forward will be thinking about both of them even again, if they are focused on things like education and health care and homelessness and not specifically about driving a quality or specifically driving climate action.

PAUL SCHUSTER: So we've outlined a little bit of the challenges in terms of why philanthropy is at half a percent or let's be optimistic and use the 2% number that you outlined earlier. We've outlined some of the challenges that philanthropy has. But where is philanthropy flowing right now? Are there certain areas where we're seeing some success with these philanthropic dollars?

RANDALL KEMPNER: Yeah. So one of the trends that we haven't talked about yet, which I think is really encouraging, is a recognition by philanthropists that for them to do more, they need to come together and create collaboratives around specific climate areas or climate solutions. And so in fact, we are seeing the growth of that and it gets really positive. So I'll give you a few examples. With the IRA in the United States, there has been a massive philanthropic effort now that it's been passed to also concern themselves with the equitable implementation of the IRA across communities within the United States. So there are two different climate philanthropy collaboratives that have been formed to help drive IRA implementation. One is called Build US and the other is called Invest in Our Future. And they are actively out there trying to help communities that may not have figured out before how to get access to federal funding or how to deploy it well to get funds to help them do that quickly. Another example would be the Global Methane Hub, which was launched a few years ago with $330 million to be a compliment to pledges that were made by nations at the Conference of Parties, the COP event about reducing methane, which as you and your listeners may know, is a very damaging greenhouse gas, particularly in the short term. So there are lots of different foundations and efforts on a global basis to try to reduce methane that are being funded by the Global Methane Hub members. There is another one called the Global Energy Alliance for People and Planet that was led by the Rockefeller Foundation, which is another collaborative focusing specifically on the energy transition in emerging markets to try to help address the dual challenge of ensuring that close to a billion people in the world that don't have access to consistent electricity get access to that, but get access to that ideally in a way which is not relying upon fossil fuel-based energy sources. So those are some places and some institutions which are stepping up. And I'm hopeful that we will see more such collaborations and those collaborations will get more money, more members and have more impact.

PAUL SCHUSTER: I can imagine that that goes beyond simply funding different projects and providing some access to capital, but also the knowledge sharing and the advocacy part that you talked about before in terms of really crystallizing how the philanthropic community wants to communicate their message to legislators, etc.

RANDALL KEMPNER: I mean, there is definitely power in the collaboration in all the ways that you've mentioned. And also, I think provides an opportunity for philanthropists who are just getting their feet wet to get their feet wet rather more quickly by joining something which already exists with other philanthropists who they might know and respect. And so that's kind of the bet. I think of many of these groups that I think that's happening to some degree, but philanthropists sort of by nature, regardless of their political persuasions, tend to be conservative with their money and their approach. And often there is a lot of desire for analysis which sometimes can lead to analysis by paralysis. And we need to figure out a way to break that. I think being able to join a collaborative which has already done some of that research, which is doing action based upon research which was done years ago, might be a way of unlocking more money quicker.

PAUL SCHUSTER: In addition to these collaborations then, what else is required to unlock these dollars? And to that point, maybe I should ask, what is a good target for us to consider in terms of unlocked dollars? It should be 2% or should we be thinking more like 10, 15 higher?

RANDALL KEMPNER: Yeah, I mean, that's a tough answer. I'll tell you that I have no hesitation saying 2% is way too low.

PAUL SCHUSTER: I think we could agree on that, yeah.

RANDALL KEMPNER: It is an issue which is potentially existential, I think not for humanity, but for human society as we know it. I mean, the kinds of problems that we're going to see if we don't figure out how to stay ideally at 1.5 degrees of increase in temperature and maybe we're okay too, although unclear. Just think about the immigration that we're going to see. You think we have a problem now about immigration in the United States and in Europe, it's going to be five or 10 times worse if you have entire countries where you see millions of people needing to leave because it's just too hot to live or because islands are underwater. That's just one piece of this, right? So we need more. We need to recognize that all philanthropy, as I said before, needs to take a climate lens to its work to make sure that if you care about education, that the educational institutions in your community are prepared to deal with extreme weather. So do they have heat pumps? Do they have evacuation plans? Do they have their air conditioning units on the top floor, not the bottom floor? I mean, a lot of places that get hit by hurricanes and heavy rain and things and flooding. I've done this already, but not every place. So yeah, I mean, I think we need more and we also need to make sure that it is better spent. We need to make sure that it is actually going to where the carbon emissions are. There are many ways of defining better, but that's a big one, right? We can have all of the money going into solar and wind generation. That those are important, but they themselves are not enough. On the investment side, one of the big disconnects is it's over 50% of private equity is going to the transportation sector, particularly EVs and associated infrastructure. Some folks are going to make a lot of money there. Some are going to lose a lot because they're going to pick the wrong horses, but 50% is too much. We need to go to other solutions, not just EVs. And the other thing I would say, quoting a friend and a colleague, John Foley at Project Drawdown, which is a kind of a leading climate organization that identifies climate solutions, we cannot forget about the time value of carbon.

PAUL SCHUSTER: Yes.

RANDALL KEMPNER: We focus on the solutions that will get carbon out of the atmosphere today, not in 10 or 15 years. It's not that we shouldn't be doing that research or having some moonshots, but I personally believe philanthropists and investors are way better served if we focus on things that can make a difference now because that has a much bigger impact than something that we would get out of the atmosphere in 10 years.

PAUL SCHUSTER: Let me push you on that a little bit, Randall, because as I think about the value of where philanthropic dollars can have the most efficacy, and we talked a little bit about the different risk profile that they have, and I would indicate that where philanthropy dollars can be of most use is in those first-of-a-kind technologies where there's not a real viable commercial market out there for it. If you're chasing the same dollars that a private equity firm is chasing in terms of a new solar project or something like that, that's really a capital stack that we've defined and we know how to do that and we have private capital that can flow to that pretty nicely. I would also argue that it seems like philanthropic dollars have a different patience around them as well, to the point where you're not necessarily seeking quarterly returns on this in terms of a financial return, you may be seeking a social return, etc. How do you justify some of these differences? Because I completely agree with the need to do things now, and I've talked about the time value of carbon before in some of my episodes, and we need to put some urgency around this and philanthropic dollars have a flexibility around being able to do things much quicker than other types of dollars, but they also have this capability to take a longer-term view with a different risk profile as well.

RANDALL KEMPNER: I guess I'm happy to engage you in your provocation.

PAUL SCHUSTER: Sure. Please do.

RANDALL KEMPNER: I would suggest that where philanthropy would be best spent, again, is on solutions which are already scientifically back that can be deployed today. I think in opposition to your view, I don't encourage philanthropists to invest in technology readiness level one ideas that are going to take 10 years before they could possibly matter. Let the federal government do that. There are plenty of federal government programs to support research and development, and state governments too for that matter, and some other bigger foundations that do it. No, let's focus on biochar, which has been around for millennia, and we know could be a gigaton a year of carbon removals if we could figure out how to scale it. Let's focus on building retrofits. It is clear that if you have better insulation and reflective windows and heat pumps instead of boilers, we are going to both reduce carbon emissions and have better living conditions for the people who live in those buildings and those homes. Those are things that can be deployed today with significant carbon impact. So let's do those.

PAUL SCHUSTER: I cannot disagree with any of that. And to your earlier point, when philanthropists are looking at opportunities where they can see the impact of their dollars at work, certainly you want to take some advantage of current building retrofits or whatever it might be, I would say that there's a role for philanthropy in all of it in some way. Maybe we can cut it close on that regard. Let's shift the frame of reference for two seconds, Randall. Let's talk about, we've been talking about it from the philanthropist point of view. Are there activities and actions that other entities should be taking in order to engage with philanthropy better? And I'm thinking, for instance, governmental entities, I'm thinking, for instance, corporations or other organizations that could avail themselves of some of this flexibility that we've talked about.

RANDALL KEMPNER: I'm not going to duck your question, but I'm going to answer it differently. I would start by telling philanthropists that they need to be as transparent and as proactive as possible in finding the partners that they could potentially work with who are not necessarily just other philanthropists and not necessarily just nonprofits. Unfortunately, philanthropy is fairly critiqued for often being opaque and for often waiting for ideas to come to it from often being NGOs as opposed to smaller ones or as opposed to those that might be in geographies that are less known. Philanthropy is doing a better job, I would say in general. There is a movement toward what we call trust-based philanthropy, which essentially says, we're going to find partners, we're going to do good vetting of them, and we're going to give them operational funds to do what they do best and not meddle with so much. That's positive, and part of that is actually being aggressive in a good way in trying to find those organizations. But I would put a lot of the burden on partnership on philanthropy, not on all the other partners that you mentioned. I do think there's more that can be done with government and corporates and with nonprofits. But as you and I both know, it's pretty hard to get multi-sector partnerships put together. And I'm for them, but then it comes back to this urgency issue again, like how long is it going to take? If it's going to take two or three years to have the perfect public-private philanthropic partnership, then I get concerned. Although I will give a shout out to the World Economic Forum who has a whole program that's trying to do more of this, it's trying to work more from the corporate side to say, look, it's important for you all to recognize your role in working with government and philanthropy to try to drive greater climate action. And hopefully they'll be able to accelerate that. But I, knowing the philanthropy sector better want to encourage philanthropy to take the lead and not just be the recipient of potential activities from other groups.

PAUL SCHUSTER: That's a really good point. There's a lot of activity on the corporate side specifically right now. And I can see how philanthropy might get subsumed into that versus trying to lead from the outside. Randall, as we wrap up the conversation today, what are the two or three things that you want to make certain that the audience takes away from this conversation?

RANDALL KEMPNER: So the first is that anyone listening to this podcast would recognize that climate change will impact things you have traditionally cared about. So that's in your life and that's in your philanthropic life for sure. So health and education, the well-being of millions of people, other things like skiing and beaches in some beautiful places are imperiled. And all of us, as individuals and as philanthropists and as investors should think about how climate is going to negatively and potentially positively in the case of investment returns, impact some of the things that we do. So that's one. The second that as it relates to philanthropy, there is a right time to act and that time is now. Try to avoid analysis paralysis, recognize that you might make some bets that fail. But I'll quote one of the folks philanthropists in the report that I wrote funding climate action. The climate philanthropy is like shooting fish in a barrel and you can't miss. There are so many different ways in which you can make a positive impact. Today, you should find some and maybe again, you get a bad fish. I'm not saying you're going to always be successful. I am saying that the dollars matter so much more now than they do in five or ten years. So get off the couch. And then the third part, I would say, is to think about climate across your financial life. So in your donations, in your personal actions, in your investment strategy, if you happen to be a person of some wealth, you should think about buying a hybrid or an EV. You should put solar panels on your roof if it makes sense in your community. You should find ways to save water. There are little things that we can all do that can have a multiplicative impact if enough people do them. And then certainly on the financial side, outside of your philanthropy, foundations in particular, but individuals as well, should think about how they can align their investment strategy with their values. You can today have an entire portfolio in the millions that is aligned with the desire to drive climate positive action by corporations around the world. And so that's doable. So again, the high point is think about climate across your financial life. Make changes that make sense for you and try to do things which helps your own personal life, but also make the world a better place.

PAUL SCHUSTER: Perfect. Randall Kempner, thank you very much for coming on the podcast and discussing this topic with us today.

RANDALL KEMPNER: My pleasure, Paul. Thanks for your chance. .