The world has become too mired in environmental problems to ignore treating its symptoms. Investments in environmental cause management—mitigation, conservation and preservation strategies—have manifest in an entirely new, multibillion-dollar investment sector: clean tech.
But what of the disastrous results already begotten by excess carbon emissions, land degradation, waste proliferation and the like? Those are symptoms. Prodigious investments are needed. And the Rockefeller Foundation is promulgating such adaptation and resiliency financing under a new, innovative portfolio of opportunities.
Until now, identifying opportunities, eliciting sophisticated investment criteria and utilizing the right financial mechanisms and peer group analysis have been rather sketchy propositions: too little supply, too little demand, a lot of both—and awkward means to effectively balance the equation. Enter the foundation’s Zero Gap, a series of new investment initiatives operating under one umbrella and whose activities began last year. Saadia Madsbjerg, the foundation’s managing director, is leading the charge.
“At Zero Gap, what we do is fund the early stage design and testing of mechanisms that in one way or another have the potential either to attract more money from the private sector to the development space—or to take that money that is already deployed and deploy it in more efficiently,” she says.
The mechanisms employed include everything from insurance-related products to securitized debt products to micro-finance vehicles.
The benefits of impact investment conduits such as these include creating less friction, which of course boosts capital flows and makes markets run more smoothly, Madsbjerg says. In turn, environmental and social challenges more easily get sustainable funding.
Conduits are important when markets are being created. They make sure capital gets from point A to point B and back again—from the investor to the investment target, with the return to the investor. In a perfect world they operate without much noise: no wobbly transfer issues, custodian issues, accounting problems, portfolio monitoring, etc.
Since the Rockefeller Foundation was instrumental in creating the impact investment market about eight years ago, it makes sense that it would employ more mature vehicles to address growing industry needs. Impact investing assets under management have grown to about $60 billion since inception.
“Capacity building facilities needed to be in place for that field to grow … and that is a very important piece of the equation. But of course the need for more capital for social, environmental and economic challenges extend way beyond what that work was designed to do. And that leads us to the work that we have called Zero Gap,” Madsbjerg says.
All told, a funding gap of about $2.5 trillion needs to be filled to achieve the sustainable development goals (SDGs) in developing countries alone, according to Rockefeller Foundation research. That number comes from subtracting the $1.4 trillion that public and private funding cover annually from the $3.9 trillion the United Nations estimates is needed per year to keep the world on a sustainable course.
The figure encompasses 17 development goals the U.N. hopes to achieve over the next 15 years to make the world a better place, including ending poverty and hunger; protecting the planet from environmental degradation; economic equality measures for all persons; fostering peace; and promulgating global partnerships between the public and private sectors. These mission areas are further broken down into specifics such as quality education, gender equality, affordable and clean energy, clean water and sanitation, responsible consumption, decent work and economic growth and climate action, among other targets.
So how does the gap get filled? The Zero Gap initiative, as its name suggests, aims to answer the question.
Through a series of programs, Zero Gap is laying the groundwork for others to enlist in the battle for planetary health and human well-being. Here are some examples of the investment tools it is sharpening:
- The Extreme Climate Facility, an effort led by African leaders, is an insurance instrument that helps that continent’s countries most impacted by climate change. It funds adaptation and resilience measures that are designed to safeguard vulnerable populations against the effects of extreme climate events. This also promotes economic growth. The ECF is looking to issue more than $1 billion in catastrophe risk coverage over the next 30 years.
- The U.N.’s Land Degradation Neutrality Fund is an investment fund designed to encourage the rehabilitation of degraded lands worldwide. Such rehab efforts can reduce poverty, diversify income, mitigate climate change and create new employment opportunities. The fund is offering equity and quasi-equity, subordinated debt, guarantees and syndicated loans to generate $50 billion over 25 years.
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The Forest Resilience Impact Bond is a pay-for-performance mechanism, a la a social impact bond, that could help the U.S. Forest Service realign its $2.5 billion fire prevention and suppression budget and reduce the risk of wildfire and drought. The USFS pays for firefighting with prevention dollars, even though fighting fires costs 40 times more than preventing them. The FRIB will offer private investors a choice of debt or equity tranches and will provide annual cash flow payments, as well as a larger single payment at maturity. Returns are to be paid by utility companies and the USFS, which benefit from improved water yields and savings from reduced wildfire severity.
- The Forest Foundation Fund is an endowment-based model for halting deforestation and regrowing forests. Overseen by the Center for Global Development, the endowment would be created by sponsor countries using government bonds or public insurance to cover private bank deposits that are advanced to the FFF. The fund has the potential to generate $3.5 billion.
By funding the “gap,” the foundation is essentially trying to fill the holes left by cash-strapped governments and charitable institutions that are already stretched thin.
“As you know, funding from traditional sources such as governments, multilateral agencies and philanthropy cannot keep pace with the escalating costs of climate change, environmental degradation, health epidemics, climate refugee crises and other roiling issues,” says Zero Gap spokesperson Kavita Tomlinson.
In fact, I do know. Having spent a great deal of time in the developing world and perennially investigating the environmental woes facing industrialized countries, I have seen firsthand the ramifications of empty funding proposals.
To be sure, the Rockefeller Foundation can fill in some of that empty space. An article published by the website GreenBiz notes that “charities and nonprofit groups have [a long history] of tackling social and technological challenges that fall between the cracks of government and industry action. Philanthropies also can be patient with their grants and measure returns over longer time horizons, as well as pursue cross-border action that can be difficult for national governments to take on alone.” The article, published in March and written by Noah Deich, executive director of the Center for Carbon Removal, and Giana Amador, a research analyst at the center, made the case for foundations being the cure for the underfunded development of climate change solutions.
In perhaps the biggest example of this, Bill Gates, through his foundation, and a litany of luminaries, including Amazon’s Jeff Bezos, Virgin’s Richard Branson, Alibaba’s Jack Ma and Saudi Prince Alwaleed bin Talal, have formed the Breakthough Energy Coalition. Their aim is to invest in technologies that will create a new energy mix. “The Breakthrough Energy Coalition is working together with a growing group of visionary countries who are significantly increasing their public research pipeline through the Mission Innovation initiative to make [clean energy] a reality,” the group explains.
It’s a huge deal when more than 20 billionaires join together with countries to invest in a single sector.
There is a great deal to admire about Zero Gap and the Breakthrough coalition, both of whose efforts could be world-changing. But the real big deal should be made for here-and-now adaptation and resiliency. There are too many problems facing the world today, even if we must plan for the edge of tomorrow. And while it’s wonderful to imagine a cleaner, greener future, for many people adept mechanisms may come too late.
Madsbjerg says the Rockefeller Foundation hasn’t taken it’s eye off the ball and is focused on resiliency at the same time that it is investing in innovative financial models that address prevention. She cites the mission of one program focused on catastrophe financing, where the premise is, “if a natural disaster happens, how can we make the money available very early on?” Other programs trigger payments when evidence of extreme climate change occurs.
Zero Gap’s mission is to fund great ideas and enlist others to invest. At base, it’s a venture philanthropy model. This is how it describes itself: “Zero Gap is focused on solutions that can ultimately catalyze large-scale capital from institutional investors, as well as households and retail investors. The innovative financing mechanisms currently under exploration range from new debt instruments
to raise commercial institutional capital for environmental preservation to micro-levies that raise funds for fighting childhood malnutrition.”
Ambitious? You bet. But exigent? Absolutely.
At the time of this writing, the White House released a statement linking climate change to increased health risks. Air pollution, extreme heat, infectious diseases and water-related illnesses are at profound levels. All this, not to mention the direct risks associated with natural disasters. The entirety of human well-being is fracturing.
Mind the gap. Innovative financing may be our lifeline to the future.
