Leverage: Why This Foundation is Backing a Carbon Investment Fund

Mitigating climate change demands massive sums of money at greater levels than any one sector can cover. More foundations are looking at making investments to amplify the impact of their dollars, often linking up with government and private money.

One such project, just officially launched, comes from Oregon-based nonprofit the Climate Trust, which secured $5.5 million from the David & Lucile Packard Foundation to seed a new fund for upfront investments in projects that can offset carbon footprints in the U.S.

It will initially make investments in forestry, grassland conservation and livestock digesters, which capture emissions from manure and convert them into electricity. While Packard is seeding the fund with one of its program-related investments, or PRIs, it was set in motion with a USDA grant. Packard agreed it would back the fund earlier this year, prompting an RFP for potential projects, and now funding has been secured for an expected eight projects to move forward.

The program differs from say, $5.5 million in grants, in that it’s an investment opportunity based on the value of carbon emissions the projects can offset. Contributing provides funds for the projects to get underway in return for partial ownership of credits that can be sold on U.S. carbon markets, with an investment term of 10 years.

That would be a tough pitch to make to private lenders, most of which would be unlikely to take a risk on something with uncertain value at this point, and over such a long term. So Packard is priming the pump. The Climate Trust is also using a portion of its program funds to guarantee a certain minimum value for the future carbon credits.

The investment comes from $180 million that the Packard Foundation has carved out for mission investing, from a nearly $7 billion endowment. The foundation has particular interests in land use solutions to climate change and the American West, making this especially appropriate. While we’re not talking about a massive financial stake on the part of the funder, the theory is that modest investments from foundations can demonstrate their potential returns to attract larger private finance.

Again, we’re starting to see a lot of these climate finance initiatives, for anything from global forest protection to energy efficiency in developing countries. A big example was a recent commitment of both government and foundation dollars to kickstart renewable energy projects in India.

It’s all about helping these investment mechanisms scale. So in the case of the Climate Trust, the goal is to grow—first to a $15 million investment fund, and eventually a $500 million fund drawing other impact investors and institutional investors that could make much more significant carbon reductions possible. If it works, compare that scale to Packard’s entire annual grantmaking budget of around $300 million to see the appeal for philanthropy.