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What Environmental Philanthropists Can Learn From Wall Street Investors

The Quick Rundown:

The Instigator champions private sector-led environmental strategies. We also argue that better environmental outcomes are achieved when business collaborates with non-profit organizations. Environmental NGOs need to be well-funded to perform at the highest level.  Let’s explore what philanthropists can learn from the way Wall Street investors allocate capital.

A couple of weeks ago, Jeff Bezos announced the first recipients from his eponymous Earth Fund. The grants totaled nearly $800 million distributed across 16 nonprofit groups, including The Nature Conservancy, which I once led. It got me thinking about how the richest man in the world — one who built his fortune on data, metrics, and shrewd allocations of capital — might structure these new relationships. 

Now, I don’t know anything more than the public about the specifics of Bezos’s funding, but I do have experience being on the receiving end of philanthropic investments from my time at TNC. And I can say that, after spending most of my career in the business world, what I saw surprised me. 

A Strange Start 

Back in 2008, I was a brand new and eager non-profit CEO. Recognizing that our big donors were some of our most important partners, one of my first orders of business was a round of courtesy calls, beginning with a prestigious foundation that had been supporting us for years.

I did my homework beforehand. I was ready to discuss in detail each of the grants the foundation had provided to us throughout our partnership. I knew what had gone well on their projects, what hadn’t, the reasons for both, and what we had learned. And looking ahead, I was ready to present several new projects we thought the foundation might want to support. This will be fun, I thought. I was excited to represent my new organization.

I arrived early for my 11:00 am meeting and waited patiently in the beautifully appointed reception area.  

At 11:30 — still waiting — I started getting restless. A nice young person asked if I’d like a cappuccino or latte. Okay. But what about my meeting?

At about 11:45, the same nice young person offered me a tour of the foundation’s brand new LEED-certified headquarters building. Fine. We had a pleasant tour. And yes, the building was beautiful. But so what? Anybody willing and able to spend enough money could do this. 

At 12:15 I called my office. I asked my assistant to tell my next appointment that I’d be late. I was way behind schedule now.  

At about 12:30, I was finally ushered into the foundation CEO’s fancy office. Game time. I was ready to go. 

But, as you’ve probably sensed by now, things didn’t go according to plan. 

The CEO quickly introduced himself (with no apology for the late start) and launched into a monologue about how the foundation focused on metrics, accountability, and rigorous measurement.

“We’re all about achieving results,” he told me. “Great,” I responded. After all, I had come prepared. 

I wanted to jump in and explain that my team had done well on the projects the foundation had funded. Not perfectly, of course. But we had mostly accomplished everything we had promised. And where we fell short, we tried to figure out why so we’d be better going forward. But the monologue continued. 

“How about asking some questions about the projects you funded?  Hold me accountable.  Ask for some metrics if that’s what you like,” I thought. But before I could vocalize anything along these lines, another young person came in to inform the CEO that it was time for the next meeting. Sorry, time’s up. I was ushered out.

The foundation had invested tens of millions of dollars in our programs. The CEO told me that the organization’s top priority is ensuring they achieve measurable results.  But he didn’t spare a moment for questions or dialogue about any of that. 

“Toto, I have a feeling we’re not on Wall Street anymore,” I thought to myself on the way out the door.  

Kinder and Wiser Masters of the Universe?

When I was at Goldman Sachs, one of my jobs was running the IPO and follow-on equity offering business. (We called this business unit “Equity Capital Markets.”)  

Before every IPO, we’d organize a “roadshow.” The company’s CEO and CFO would spend two full weeks on the road with us, meeting with institutional investors every day from early in the morning all the way through drinks and dinner.  

When we first told them this was how it’s done, the CEOs usually balked. “Can’t do it.  I’m too busy,” they’d say.  

“Sorry,” I’d explain. “It’s mandatory. But two things you should know.  

“First, these investors are really smart. They’ll be prepared. They know your competitors inside and out. You’ll be impressed. Be ready to answer many tough questions.   

“Second, you only have to do this once. Afterward, your investors want you to be focused on running your company, not traveling and taking meetings with them. They want results.”  

The CEOs almost always ended up enjoying the roadshow. Yes, the investors were brash, sometimes impertinent, very young, and occasionally even rude. But they knew their stuff. Answering their questions was challenging. You could learn a lot through the back and forth. And nobody’s time was ever wasted, that’s for sure.  

One CEO even said to me, “Spending time with smart investors like this will help me run my company better.” Exactly, I thought.

One of These Things is Not Like the Other 

Everybody knows Wall Street doesn’t always get capital allocations right. (See: Enron, 2008 financial crisis, Theranos, WeWork, etc). But broadly speaking, things usually go pretty well.  

Enormous sums flow from capital providers (investors) to capital users (companies). Audited financial reports keep investors informed and facilitate comparisons and analyses. Analysts, journalists, and daily stock price quotes help everyone stay up-to-date. CEOs and management teams focus on running their organizations, not fundraising. More capital flows to better performers and better terms. Companies raise capital for “general corporate purposes,” which gives them the discretion to spend the funding where they think they can earn the highest return on investment. 

In the philanthropic world, it doesn’t work like that. I acknowledge it’s not as easy.  Financial reporting doesn’t capture the most important information about outcomes and impact for NGOs. There are no “equity capital market” banking teams organizing roadshows. There are no (or very few) analysts appraising the NGOs. No stock prices, no Wall Street Journal, or Jim Cramer on CNBC.

I also want to acknowledge and emphasize that professionals in the philanthropic world (usually working at foundations) are smart, dedicated, hard-working, and very good people. I enjoy working with them, and I’ll always be grateful for everything they do to support NGOs and to make the world a better place.  

But still… I think professional philanthropists can learn a lot from their Wall Street counterparts. It will make them better partners to the organizations they support, and they’ll get more accomplished.

A Few Ideas from Wall Street for Philanthropists 

Obviously, this is too complex of a topic for me to fully cover in a single email missive.  But it’s worthy of exploration and ongoing discussion, so I’ll make my contribution by noting a few practices that I think can make a positive difference. I know I would have appreciated the following approaches back when I was a CEO of a big NGO.

  1. Do the work, analyze results, make comparisons. Investors pay close attention to all of the companies in any sector where they invest. They know who’s doing what, where the innovations and breakthroughs are happening, and where their portfolio companies face risks or have big opportunities. This lets them see things that management teams sometimes miss.
  2. Ask management teams to explain their plans, identify desired outcomes, and provide specific milestones for the period ahead. Sounds obvious, I know. But this takes some discipline. This is where holding management accountable makes a lot of sense. All you have to do is follow up. When things go counter to plan, ask why. If management teams regularly miss their plans (or worse, drop their plans), get a new management team.
  3. Provide capital for what companies call “general corporate purposes” (known as “unrestricted funding” in NGO parlance). Please don’t use the term “overhead”  —  it’s offensive. When great companies invest in training, marketing, HR, R&D, information systems, and other technology — and the best companies invest huge sums in these areas — nobody calls it “overhead.” These investments are what enable great performance. It’s just as true for NGOs.
  4. Don’t micromanage. Even though investors pay extremely close attention to their companies, they don’t usually tell management or staff what to do. Resist the urge to dream up your own projects. Don’t ask NGOs to compete for the assignment to execute your initiatives. Rather, support great organizations in their efforts to achieve their mission and goals.
  5. Respect the management team’s time. NGO CEOs are always on the road fundraising. They joke about it with one another. I felt like my IPO roadshow continued every business day for the entire 11 years I worked for TNC. This is crazy. NGO CEOs have complex organizations to run. But they need your capital and will keep selling until you persuade them to stop. Agree on a set number of meetings per year. Do meetings by Zoom as much as possible. Provide your capital in a smaller number of much bigger grants. 
  6. Learn from for-profit investors. The analogy is imperfect but there is a lot to learn here.  Visit Fidelity or T Rowe Price and watch their investment teams in action. Add some of their executives to your boards. Read Warren Buffet’s annual reports.

A Donor in Buffet’s Clothing 

It’s not just about what foundations and their leadership can do for the NGOs. It’s also about what they can expect from NGOs and how to keep them accountable. Some philanthropic leaders get this right. I especially admired how one foundation CEO worked very hard to get to know me, my organization, our projects, and our marketplace when I was running TNC. It really felt like she was a long-term strategic partner.

I told her she reminded me of Warren Buffet back when he was a big investor in the Washington Post and worked very closely with the paper’s publisher Kay Graham. He knew everything he could know about the Post, its market, the competition, and the challenges that Graham faced. And he did everything he could to help her and the company succeed. (You can read about all of this in Graham’s superb memoir or in this great biography of Buffett. Both are great books for investors or donors to study.)

Here are a few of the things this leader did to be a smart and supportive backer of TNC.

  1. She visited TNC headquarters at least once per year. As I recall, no other foundation CEO visited me even once during my 11 years at the organization. If you’re investing tens of millions of dollars every year in an organization (as this foundation was doing), it should be a no-brainer to visit annually, kick the tires, check out the CEO, and see how she/he interacts with the team, right?
  2. She attended some of my board meetings as a guest and met with some board members privately. Again, common sense, right? Find out what’s on the board’s mind, see how they view the CEO, get a firsthand sense of what drives the organization.
  3. She required a one-on-one conversation with me before the foundation approved any grants.  She and her team knew I wasn’t writing up the proposals and wouldn’t always be hands-on with the projects. But if the proposals were important enough for her foundation to fund, then they were also important enough for me to explain why I viewed the projects as critical.
  4. She funded a special CEO project every year.  We’re not talking about a lot of dollars here. But the foundation funded a small grant annually for a project that otherwise probably wouldn’t happen. I still had to submit an official proposal.  The foundation CEO and I would always have a one-on-one conversation about my proposal before it was approved. And it wasn’t always approved. This practice was a great relationship builder and led to some strong new programs. It was also a smart way for the foundation CEO to see how I think. And, after a few years, depending on how these new projects went, it was also a good way to see if my ideas are any good. 
  5. She worked very hard and traveled extensively. I thought I worked hard as CEO.  TNC does projects in all 50 states and in another 70 countries. It felt like I traveled nonstop to visit them all.  But this foundation CEO visited more TNC projects than I did.  She always arrived very well briefed. And by the time she left, she had met with the full TNC team, most of our partners, had asked countless questions (no monologues!) and knew the work inside-out. There’s no substitute for hard work.
  6. She always asked us to list our greatest funding needs. She recognized that we were in the best position to identify the needs and opportunities unique to us, as well as to prioritize among them.
  7. She did so much more. I could go on and on here. The main thing is she and her team did everything they could to get to know us, our projects, and our people.  They were tough, demanding, and critical when things went wrong or we didn’t know our stuff. But it always felt like they were on our side, and together we achieved some great outcomes.

The private sector gets a lot of flack from the advocacy and nonprofit world. Some of it is well deserved, but some of it also feels reflexive and absolute. I think we should value progress over perfection and embrace more actors who have smart ideas and are willing to do their part. 

Jeff Bezos and his Earth Fund are already drawing a ton of criticism for thus far choosing to partner with  “mainstream” climate organizations, rather than experimental ones. I’ll have more to say about that next week. But for now, I’m just glad these organizations are getting much needed financial support, and I hope the fund’s management nurtures and holds those organizations to account the way they would any division of Amazon.  

Put Me in Charge — How I’d Make My Private Equity Firm A Climate Leader

The Quick Rundown:

Companies and investors are starting to make big things happen — and fast — to address the climate challenge. The private sector is investing in climate solutions, mobilizing talent, innovating, committing to GHG emission reductions and better climate disclosure. This is just what we need for climate progress.  But one large, talented and influential sector can and should be doing more: private equity.

How to Win Friends and Influence People

As my fellow Dale Carnegie acolytes know, salesmanship is a key success factor for building a bigger environmental coalition. More on that in a moment. But first, some background.

Back when I ran The Nature Conservancy (2008-19), I worked hard to persuade business leaders to prioritize environmental problem solving.  Thanks to capable colleagues at TNC and courageous partners in the private sector, CEOs across diverse industries and all over the world stepped up and made bold commitments to address climate change. 

How did we sell this idea?  We showed that doing the right thing for nature was not just good for the environment, but it was also good for business.  Well-designed, ambitious environmental initiatives make business sense.  They create new opportunities to grow the top line, reduce costs, lower risks, make better long-term decisions on things like capital spending, and inspire key constituents including employees and customers.  Just as importantly, they also please the growing number of shareholders who now care deeply about environmental strategies.

I tried to make the same argument with the titans of the private equity (PE) sector. PE firms have enormous influence on markets, control a huge number of companies, employ brilliant people, manage large sums of capital, and enjoy extraordinary profitability. Their very modus operandi — buying companies, investing in improvements, and selling them at a profit —  is a massive opportunity for environmental leadership.

Alas, my sales pitch here was less successful.   

To be sure, we had some nice victories in the broader financial sector.  We persuaded a number of individuals, and one PE firm, to donate generously.  We built an innovative nature-focused technology accelerator in partnership with the VC firm Techstars.  With JP Morgan, we launched NatureVest, a hugely successful first-of-its-kind initiative to catalyze donations funding important conservation deals with billions of investor-provided dollars. And near the end of my time at TNC, we co-launched and were a full partner in a $1 billion investment fund with PE firm RRG that is a game-changer in water conservation investments. That’s a lot to be proud of. 

But still . . . I thought we would do much better than that.  I’d been optimistic that we could persuade PE firms to pursue environmental opportunities with the same bold approach they took to managing their everyday business. I thought I was a good salesman, and I knew that I had a superb sales pitch. And yet, I wasn’t making the headway I expected. 

WWDCD? What would Dale Carnegie Do? That’s easy. He’d advise the following:  “Talk in terms of the other person’s interest.”  “Try honestly to see things from the other person’s point of view.”  “Appeal to nobler motives.”  “Throw down a challenge.”  And so on.  Perfect, right?

So, I urged PE firms to team up with my organization in order to tackle together some big environmental projects.  These would be initiatives that would draw on their sophisticated financial engineering skills, bolster their reputations, and improve their standing with key constituents like national governments and multilateral banks.  I suggested that they lend us some of their talented staff to boost our creativity and to give their younger deal-makers new problem-solving opportunities to accelerate their career development. I pointed out that capital is now abundant and increasingly seen as a commodity, therefore if an investment firm wanted to differentiate themselves and improve returns, they needed another angle — and what better one could there be than addressing societal challenges like climate change? (See examples here and here).  

I had plenty of proposals, rationales, and ideas.  I think Dale Carengie would have approved how I pitched them. But I didn’t close any big partnerships along these lines.

Why? A combination of tunnel vision and habit. Maybe I was ahead of my time. And while maximizing returns is still (and will always be) the highest priority for PE, what that requires today is different than in the past. True, if a deal-maker views the world only through an IRR (internal rate of return) cash flow model, anything that raises costs, requires more capital spending, or delays the exit will by definition lower returns. But certainly the PE business is more complicated than that.

What does success look like for private equity firms in a world transitioning to net zero emissions?  

As an outsider, I see PE firms engage in five essential activities: 

  1. Fundraising  
  2. Purchasing good companies at the right price  
  3. Helping these companies improve performance 
  4. Selling these companies at attractive valuations, and 
  5. Recruiting and retaining talented people to keep the cycle going 

Now ask yourself:  

  • How will succeeding in each of these five areas look different in the years ahead as the major economies are forced to truly confront the climate challenge?  
  • What will cause my PE firm to stand out as a global business leader? 
  • What can we do to be viewed as a preferred partner to prospective selling companies? 
  • How can we improve our appeal to LPs, employees, and recruits?  
  • How can we ensure our portfolio companies don’t get left behind in a rapidly decarbonizing world?  
  • And, most importantly, where can we find new breakout investment opportunities?

These may seem like disparate questions but they all have an answer in common. Focusing on an enormously challenging global issue like climate is one likely way to guarantee your place in a future economy and realize major opportunities. And that’s even before we get to the moral argument: What climate-addressing actions should we take to be a responsible member of a society that seeks to transition to net zero? 

Climate change is happening right before our eyes and with deadly consequences. Customers and shareholders insist that their companies do something about this crisis. And most governments and companies are prioritizing this challenge. 

Forward-thinking PE firms should jump in and help lead the climate transformation.

I was whining about all this with a friend over the weekend. She finally became exasperated with me. 

She asked: “What would you do if you ran a big PE fund today and wanted to really go after the climate challenge?” 

Now that’s a great question, I thought.

Here’s my answer:

What My Private Equity Firm Would Do to Address the Climate Challenge

One obvious step is to study what leading companies are doing on the climate front right now.  Why would I want my PE firm to lag behind top companies?  

My PE firm commits the following:

1) Align with the Paris Climate Agreement 2050 goals

First, we will sign up to be members of the Science Based Targets initiative (SBTI).  We’ll commit not only at the parent level, but we will also include all of our portfolio companies.  Why not? As of today, exactly 1052 companies have signed up for SBTI.  If they can do it, we can too. 

The SBTI recognizes that different companies and industries face different challenges and therefore allows different levels of ambition. My PE firm, since we choose to be leaders, will set targets for our portfolio companies that are consistent with the 1.5 C goal that is aligned with the Paris Climate Agreement.  Since some of our portfolio companies are very carbon-intensive now, we’ll take the next two years (as SBTI allows) to set and validate appropriate and ambitious targets for each of them.

2) Set ambitious interim goals to be achieved by 2030

In the PE business, we know that “what gets measured, gets managed.” We need to ensure that we are on track to meet our long-term goals.  Since SBTI targets are goals for 2050, we’ll also set ambitious interim goals to be achieved by 2030. 

3) Disclose climate risks 

We are aware that financial regulators are calling for all climate risks to be fully disclosed. As a sophisticated financial organization, we think we can add a lot to the efforts underway to get this right. We will pledge to collaborate with the Task Force on Climate-Related Financial Disclosures and other initiatives to determine the best way to make this happen. 

4) Prioritize direct emissions and offset the rest 

Our top priority will be reducing direct emission reductions. But we will also use nature-based offsets to get beyond what we can do firsthand.  We will comply with the Oxford Principles for Net Zero Aligned Carbon Offsetting.

5) Launch a philanthropic conservation fund 

We’ll support NGOs with a mission to protect important intact ecosystems and also to improve climate equity and environmental justice outcomes.  We’ll do this because we recognize that we are drawing on these organizations’ great work, and therefore, we owe them and need them to be well-funded.  We’ll look for opportunities to partner with NGOs too, as we know the two sides can learn a lot from one another.

6) Establish GHG reduction committees: We will form advisory councils for our investors, firm employees, and portfolio company teams to generate new ways to address GHG emission reduction and other climate addressing opportunities.  We want to hear from all of our key stakeholders.  This is not a “feel good” move.  We’re excited because we know these key stakeholders have great ideas, they want to be heard, and facilitating this will strengthen our culture and improve outcomes.

What’s Missing? 

The focus of this essay is on addressing the climate challenge.  But I want my PE firm to be a leader across the spectrum of ESG challenges.  So expect us to take parallel steps on that front. [The Instigator will address these important opportunities in future posts].

But Aren’t PE Firms Doing Some Good Things on the Climate Front Already?

Yes, there is positive momentum underway that PE firms can build on.  Many firms have launched “impact funds” and are also emphasizing investments in clean energy and other climate addressing businesses. Some firms are also acknowledging a need to lengthen investment horizons. And there are probably other worthy initiatives that I’m unaware of (disclosure can be improved).  

This is all positive but insufficient.  To reach our climate goals, we need a concerted effort that binds these tactics together. We need across-the-portfolio bold and transparent commitments to get to net zero by 2050, along with robust milestones along the way, period.

We can see how to do this by looking at any number of corporate climate leaders, like this humble yet bold statement by Microsoft’s President Brad Smith. Here’s another good one — this time from Walmart.  There are many others 

It Can’t Be As Simple As You Suggest? 

I suspect that’s right.  I’ve learned in all of my collaborations with the private sector on environmental projects that it’s always more difficult to run a company than it looks. And, likewise, it’s also more complex to set up and achieve the right environmental initiative than an outsider might understand.  That’s probably even more true for PE, given the diversity of companies they control.  

But I’ve also learned this: the key is to get started. That’s the only way to make progress. My checklist will work well — as a starting point.  Maybe some of the goals will need to be revised, which is fine.  Maybe we’ll learn that there are other initiatives for PE firms that can make a bigger difference.  All of this is new and everybody is learning as we go forward.  The best way to develop an ambitious, but doable plan is likely through some good back and forth between PE firms, outside advisors (including NGOs), and other key constituents (investors, employees at both the parent and portfolio companies). But we still need to start somewhere. 

Start A Race to the Top

The upside here can be very significant.  All we really need is for a few PE firms to step up and take on this challenge.  Stakeholders will inevitably encourage the rest to hustle and catch up.  The reward for doing so will be two-fold: progress in achieving our climate goals, and PE firms that are more successful in a rapidly changing world.