What role can catalytic capital play in investing in climate?
Claire Raffel, Senior Consultant at JSC Impact, looks into how critical impact investments can help de-risk innovative climate solutions
Amidst the exciting and overwhelming swirl of this year’s Climate Week, I had the opportunity to participate in a discussion hosted by Impact Assets and the Surdna Foundation, along with Beth Foster-Chao of the Autodesk Foundation. What made this event particularly close to my heart was its focus on the role catalytic capital1 can play in investing in communities on the frontlines of the climate crisis.
As holders of a donor advised fund2 or DAF, with Impact Assets, my husband and I are continually exploring how to deploy capital in the most helpful and equitable ways. We learned early on that the beauty of a DAF is that once you donate the money, it’s not technically yours anymore. Instead, you become an advisor for how these funds are invested and granted. During the panel session, we looked at how this stewardship can free DAF holders to experiment, take bigger risks, and measure returns in social and ecological benefits, not just financial gain. In the face of the trillions of dollars in climate investment needed, learning that we could cycle some of our (non-trillion-dollar-scale) DAF funds through multiple climate projects over time, and potentially help these projects unlock bigger, institutional capital, was a real aha moment.
So, what can this kind of catalytic investing in a just transition look like? We, and—as it turned out—several people in the audience, have all invested in the nation’s first tribally-owned utility-scale wind farm, Anpetu Wi, at Standing Rock. The Standing Rock people have been excluded from participation in economic opportunity for a long time. It is one of the top 10 poorest counties in the U.S. Finding affordable, patient capital to launch a major renewable energy project could have been prohibitive. Instead, catalytic investments at the earliest stages of the wind farm’s development, from foundations and DAF holders, are helping the tribe to retain ownership and governance of this and future projects. In turn, this early concessionary capital will unlock hundreds of millions of government and institutional funds as the project is developed. Once it’s up and running, Anpetu Wi will provide a significant amount of clean energy, along with jobs and economic opportunity. It will ultimately generate more than $16 million in revenue over 25 years to reinvest into an ecosystem of community owned projects such as solar installations and EV chargers.
At the end of the panel, we were asked what gaps we see. My answer? We need to shift more money towards a just energy transition, faster, and more creatively. In 2022, approximately $234 billion was sitting in DAFs. That’s almost six times more than the $40 billion venture capital firms invested in climate in the same year. It’s time to rally more DAF holders around the urgency of the climate crisis. Thanks to communities launching incredible projects like Anpetu Wi, we can help de-risk these innovative climate solutions, coming in first, taking bigger risks, providing less expensive capital, and giving a longer runway to help these projects grow and attract more money. Investments like these are critical to ensuring that communities of color and low-income communities gain ownership and wealth as we move towards a net zero future.
1 Definition of catalytic capital - deploying capital in ways that are more patient, risk-tolerant, concessionary, and/or flexible. These investments can overcome financial risks or other barriers that prevent investors from directing conventional capital to the kind of projects that are needed for a just energy transition. (Adapted from Prime Coalition).
2 Donor advised funds, or DAFs, are private charitable funds administered by a third party on behalf of an individual or other entity. Increasingly, DAF holders are realizing that they can significantly increase the impact of their DAFs by both making grants AND investing the money that is not immediately being used for grants in mission-aligned investment. The panel’s host, DAF sponsor Impact Assets, was specifically set up to facilitate this, and other DAF sponsors are starting to do so as well.