With the Stakes Rising, Foundations Mobilize New Capital for Daunting Global Challenges
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Protecting tropical forests is the focus of new impact investments
Going on five years ago, U.N. member states universally adopted 17 Social Development Goals (SDGs) to end poverty, protect the planet and ensure all the world’s citizens enjoy peace and prosperity by 2030. Meeting them comes with a high degree of ambition, and a price tag that the Rockefeller Foundation puts at $2.5 trillion annually.
Even incremental progress will take the concerted efforts of the global community and out-of-the-box thinking by all parties. Some in the philanthropic sector believe that means moving beyond the usual 5 percent solution to harness endowment wealth, embracing the idea of aligning missions with investment strategies, and catalyzing the participation of others to help impact investing realize its full potential.
Putting endowments at risk makes many foundation leaders uncomfortable, and for good reason. But the daunting magnitude of the resources needed to achieve the SDGs is prompting some foundations to think more boldly about impact investing. Similarly, the growing alarm around climate change is also injecting new urgency into funder conversations about how to leverage their financial resources. Recent months have seen intriguing developments on both these fronts.
Catalyzing Capital
One major effort underway around the SDGs, as we’ve reported, is the Catalytic Capital Consortium (C3), an investment, learning and market development initiative launched last March by the John D. and Catherine T. MacArthur Foundation, in partnership with Rockefeller and the Omidyar Network. The initiative represents the partners’ belief that a more effective use of patient, risk-tolerant and flexible financing is essential to solving critical global challenges.
MacArthur committed to investing up to $150 million, on a matching basis, to ventures and strategies that help scale, innovate and sustain high-impact projects across sectors and geographies. Rockefeller and Omidyar are lending their expertise, and the three partners are collectively funding $10 million in grants to help educate and inform the catalytic capital community.
C3 announced its first investment at the time of the launch last March, a $30 million match to the Rockefeller Foundation’s Zero Gap, a financing portfolio designed to catalyze $1 billion in new capital to close the gap in SDG financing. It also opened an invitational proposal process for additional field partnerships.
Interest has been robust. The invitation attracted more than 100 proposals, requesting more than $2 billion. MacArthur says that while the demand for capital on “attractive terms” wasn’t surprising, it was impressed by both the quality and potential impact of the proposals that came over the transom. Submissions came from all corners of the world, addressing the full spectrum of SDGs with “notable concentrations” on poverty, gender equality and clean energy. Decisions are expected during the first half of 2020.
Two important elements of the field partnership model are advancing investments on a matching basis, and the potential for substantial impact aligned to the SDGs. Recently, MacArthur announced a second field partnership with Terra Silva, which was already in development at the time of the initial launch. MacArthur believes the initiative meets its model by bridging a critical capital gap, targeting a consequential impact challenge in climate change mitigation, and seeking systemic change.
Terra Silva
Terra Silva is the $90 million impact investing collaborative of David and Lucile Packard Foundation, which responds to the challenges of global climate action by proving out the economic viability of investing in sustainable land use in and around tropical forests. MacArthur’s $20 million match will help it focus on conservation, restoration and sustainable management efforts around the globe.
Terra Silva’s ultimate goal is to “significantly expand opportunities for commercial investment in sustainable forestry and agriculture by pioneering new investment models, accelerating their adoption, and helping build market infrastructure for climate-smart forestry.”
Debra Schwartz, managing director for impact investing at the MacArthur Foundation, says the match aligns with C3’s ambitions “to recognize, amplify and support leaders in the use of catalytic capital to address some of the world’s most pressing challenges. By co-investing with the Packard Foundation, we can unlock essential investment for sustainable land use in and around tropical forests.”
Packard and Climate Action
The David and Lucile Packard Foundation focuses on supporting the issues its “founders cared about most,” including marine aquaculture and wildlife conservation, the protection and conservation of the North American West, expanding scientific knowledge, and empowering the next generation of scientists and engineers.
Packard considers climate change the “defining issue of our day”—a global problem that “demands global action”—and has actively used mission investments to promote sustainable forestry and climate-smart land use. Five years before the SDGs were even launched, it began approving more than $80 million in mission investments for climate-smart solutions and innovations.
Terra Silva escalates that deep commitment. Susan Phinney Silver, the foundation’s mission investing director, describes the initiative as “our first significant climate investment collaboration to unlock much greater capital than we could on our own to address climate change and reduce greenhouse gases as quickly as possible.” She expects investments to catalyze private financing now and over time by “proving out these business models and bringing them to a critical mass of scale, where they can attract the interest of private and commercial investors.”
Terra Silva’s on track to begin deploying financing in the first quarter of 2020.
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