Foundation News
Sierra Club Foundation Investment Evolution
At Sierra Club Foundation, every investment decision is evaluated through two lenses: return and impact. Naturally, as an investor, we have an obligation to preserve capital and generate returns sufficient to fund our grantmaking and long-term obligations. We also have an explicit mission to use our capital to reduce real-world emissions, protect our environment, and promote just solutions to the climate crisis.
It has become increasingly obvious that these missions go hand in hand. Climate change is an un-hedgeable, systemic risk. As things stand, climate change could cause global stock values to plummet by 40 percent in the next 25 years. The more irreparable damage that is done to our environment, the worse these effects will be—and the less likely it is that these losses will be temporary. Given this scale, it goes without saying that no industry is safe from the financial consequences of climate change.
The financial realities of our worsening climate mean that investors must take climate risk seriously, not only to preserve our environment but also to fulfill their fiduciary duty. Indeed, failing to account for this risk threatens an investor’s portfolio performance and the very economic and ecological systems on which their beneficiaries and clients depend.
In 2008, Sierra Club Foundation made small allocations to mission-aligned fund managers. While these contributions were modest, they nevertheless established the Foundation as a leader in the burgeoning responsible investment movement. In the 17 years since, our investment process has evolved through four stages: unscreened holdings, divestment, catalytic capital allocation, and finally, total portfolio activation.
Like the vast majority of U.S. endowments and foundations, our original investment strategies did not align with our mission. To rectify this, Sierra Club Foundation pursued a divestment strategy that saw us screen out heavy polluters and fossil-fuel producers. Simultaneously, we began allocating catalytic capital to projects—particularly those managed by groups underrepresented in capital markets—that accelerated investments in climate solutions while also advancing economic opportunity, community resilience, and environmental protection.
Catalytic capital allocation still plays a vital role in the Foundation’s investment strategy. At the same time, while holding a purely “green” portfolio may align with our brand, empirical evidence shows that divestment alone does not decarbonize the economy. Instead, it cedes our seat at the table to other shareholders who, intentionally or not, are less focused on addressing climate risk.
That’s why we’re now working toward total portfolio activation, in which we hold a diversified basket of stocks and use our active ownership and stewardship prerogatives to incentivize better practices at polluting companies so as to protect the critical systems on which all investments depend. We also avoid bonds that finance new fossil-fuel expansion, and make investments in private equity funds to accelerate a transition to a clean economy for all. We’ve already seen how this strategy of engaging equity and denying debt can reduce emissions in the real economy.
In May 2018, we spearheaded an investor letter-writing campaign to more than 100 fossil fuel companies and financial institutions, leveraging our membership in various investor networks to recruit signatories, urging them to refrain from financing development in the Arctic National Wildlife Refuge. After securing support from investors with more than $2.5 trillion in collective AUM and working with Indigenous leaders to highlight the human rights concerns of these projects, all six major U.S. banks passed policies excluding financing for oil and gas projects above the Arctic Circle. By late 2022, a federal lease sale in and around the Arctic Wildlife Refuge attracted no oil and gas company bids.
We hold ourselves and our intermediaries to the highest standards of system stewardship. That’s what pushed us to ditch BlackRock/Aperio in favor of asset managers who actively work to protect our environment. Because right now, the health of our environment and our economy depend on financial leaders taking bold action to tackle climate risk—and this change won’t happen on its own. By turning our entire portfolio into a mechanism for driving change, Sierra Club Foundation is once again leading the way and demonstrating how financial decisions can deliver sustainable results.