The McKnight Foundation on Monday announced a new target to achieve net-zero greenhouse gas emissions in its portfolio by 2050 at the latest.
The foundation — with $3 billion in assets under management — is the largest U.S.-based private foundation to make the net-zero commitment, following in the footsteps of the David Rockefeller Fund, which announced its decision in 2020.
“Foundations have so many options to get engaged and activate their endowment, but they have been slow to do so,” said Elizabeth McGeveran, director of investments at the McKnight Foundation, in an interview with Institutional Investor.
Hours after McKnight announced its net-zero plan, the Ford Foundation, which managed $16 billion as of December 2020, revealed that moving forward, it will not invest in any fossil-fuel related industries. However, the organization is not divesting from the fossil fuel investments that currently make up 0.3 percent of its portfolio.
“When I look at much larger and more complicated asset owners and managers, I see more commitments,” McGeveran said. “These dwarf McKnight’s $3 billion, but they’ve all moved proactively on this. I was surprised when we looked and found that David Rockefeller Fund was the first net-zero commitment from a private foundation.”
The McKnight Foundation has been taking action on climate change for years, creating a staff and board working group back in 2013. “We got very high-level buy-in and created a framework, and then we just started investing,” McGeveran said.
In 2014, the organization told its separately managed accounts that it no longer wanted to own coal. In 2018, the foundation told those same accounts that it no longer would invest in oil or tar sands.
“We already have a really active investment program around decarbonization,” McGeveran said. “Making a net-zero commitment seemed like a logical next step.”
Today, the foundation has $500 million, or 15 percent of its endowment portfolio, invested in assets that mitigate the effects of climate change. Another $600 million is invested in “climate aware” strategies, which incorporate climate change into their portfolio themes.
According to McGeveran, McKnight invested in a defensive equity product at Parametric as a part of its absolute return strategy. Through that fund’s stock portfolio, McKnight added some climate and ESG considerations — a customized approach that carried over once Morgan Stanley acquired the company.
She added that the foundation sources its investments through its private markets consultant, Mercer, and Imprint Capital Advisors, a subsidiary of Goldman Sachs that the foundation has been working with since before it was acquired by the bank in 2015.
McGeveran said that the foundation already has a good sense of the carbon intensity or emissions produced by its public markets portfolio. “We need to really understand what’s happening in the less transparent parts of our portfolio,” she added, noting that a major next step is to work with its managers to learn more about the effects of its private investments. The McKnight Foundation said in Monday’s announcement that it plans to set interim goals for 2030 in order to reach net-zero emissions by 2050.
“The climate crisis is happening whether or not we take action,” McGeveran said. “Smart investors pay attention to changes. We think of this as an opportunity for the financial health and well-being of our endowment, and we think of it as a responsibility.”