ImpactAlpha, Oct. 18 – In late July, The Rockefeller Foundation announced a major shift: it would make climate central to everything it does.
The move comes two years after the foundation, created by oil magnate John D. Rockefeller in 1913, committed to divest from fossil fuel companies.
“The Rockefeller Foundation must reimagine our philanthropy once again,” Rockefeller’s Raj Shah wrote at the time. Much of the new climate work will fall to the Innovative Finance team. Amy Cortese interviewed Thomas Belazis, director of Rockefeller’s innovative finance initiative, at the recent Phenix Capital conference in New York about the opportunities to catalyze climate action.
ImpactAlpha: Thomas, tell us about the Innovative finance group – where it sits within the foundation and some of the themes and initiatives you’re working on.
Belazis: I’m a director on the innovative finance team, which you could characterize as the foundation’s de facto impact investing arm. Our mandate has really been multifold. We serve as a cross-cutting strategic investment arm of the foundation, investing across our different initiatives that span energy, food and ag, health, U.S. economic opportunity and data and technology. We support those initiatives in all things investing, from developing strategies to executing transactions on their behalf.
Among our most significant initiatives over the last 12 months was helping to stand up a new entity, basically the spin out of our energy strategy, called the Global Energy Alliance for People and Planet. It was launched at COP26. Initial anchor partners include The Rockefeller Foundation, Bezos Earth Fund and IKEA Foundation to accelerate energy transition and energy access in emerging markets, providing a base of over $1 billion in seed capital.
Beyond that, we have a fund that we manage called the Zero Gap fund, it was a partnership that we forged with the MacArthur Foundation in 2017. That’s a broad base impact fund that invests across the United Nations Sustainable Development Goals and across asset classes with a view towards bringing more private capital into this space.
More immediately, our team is really focused on climate and we’re in the process of developing our own dedicated climate strategy on the back of a big commitment that our president, Raj Shah, made a couple of months ago. He wrote a memo announcing that we’re going to make the entire foundation climate-aligned.
ImpactAlpha: Raj said that if we have three degrees global warming, which we are unfortunately on track for, that would wipe out all of the great work that The Rockefeller Foundation and your partners have accomplished over the last several decades. So, what’s this strategy going to look like?
Belazis: We’re still figuring it out. Over the course of Rockefeller’s 100-plus year history, we’ve never really considered ourselves to be a climate-focused organization. We’ve certainly had environmental initiatives. Our underlying mission is focused on promoting the well being of humanity, so our key stakeholders have largely been poor and vulnerable populations. The reality is that if we want to support vulnerable populations, we really have to tackle climate change. Study after study suggests that while the poor and vulnerable are contributing least to climate change, they’re the ones that are really bearing the brunt of its impacts. That trend, as climate change becomes increasingly more intense and severe, is really starting to undermine our work.
So, if we really want to achieve our mission, it’s important that we address this issue head on. That’s why we’ve made this commitment. And that’s part of the reason why our team is really focused on thinking about market based solutions to address this problem.
ImpactAlpha: What are some of the initial gaps you’ve identified?
Belazis: We’re looking at the full suite of decarbonization solutions. But one area of particular interest – building on a lot of work that we’ve already done at the foundation – is natural capital. In addition to that sector being largely underinvested, relative to areas like renewable energy, nature-based solutions are expected to contribute to about a third of the carbon removal that’s required by 2030. So we see significant opportunity in that space.
The areas that have been really exciting to us within natural capital have been themes like reforestation, conservation, particularly in the Amazon, the blue economy, blue carbon, and really looking at the interplay between the carbon markets and nature-based solutions. We see this tremendous demand for carbon credits, which isn’t necessarily matched with a commensurate amount of supply. We think that there’s a lot of opportunity to use our catalytic funds to accelerate that part of the market.
ImpactAlpha: Let’s talk about carbon markets a little more. A lot of people are piling into this – Salesforce just announced a carbon market, the World Bank is creating a blockchain-based carbon market. How are you making sense of all this? How does The Rockefeller Foundation play?
Belazis: I certainly don’t want to pretend that I’m an expert in carbon markets. It’s a deep and murky market. But what is exciting is that you have big players like Salesforce, Microsoft and other corporates jumping into this space and creating a significant amount of demand for carbon. And given that you do have this shortfall of supply, it’s making areas like nature-based solutions very interesting, because the price of carbon is reaching a point at which some of these projects are starting to look pretty attractive.
From a systemic perspective, there’s a lot of unscrupulous activity in that space. There’s a lot of dubious carbon removal in the market. So people are gravitating towards high quality carbon. And that is very interesting, because we’re finally reaching a point where the market is starting to price in the positive externalities of nature.
So the carbon out there that is of highest integrity – within reforestation, projects that come from native species versus monoculture, or projects that are backed by science, are easy to measure and come with co-benefits like engaging local communities – all of that impact has been priced into carbon such that high integrity carbon credits are commanding a significant premium to their comparables. And that is incredibly interesting. As fragmented and inefficient as carbon markets are, we are moving in this very interesting direction, where the market is actually putting a price on the impact of environmental conservation. I’m excited to see how it unfolds over the next five years.
ImpactAlpha: Carbon pricing is all over the map. Direct air capture from some of these big climate tech companies like Climeworks might get upwards of $600 or $700 for a ton of carbon, while a lot of the nature-based projects are still under $10. I worry about how much of the capital actually goes to the land stewards and the small farmers and the indigenous communities that are doing the work on the ground?
Belazis: Once you start getting into the world of carbon capture, you’re seeing prices as high as $1,000 per ton. In our view, that’s not sustainable. But I think it’s really important what the corporates are doing to provide that carbon uptake because we need these technologies to achieve net zero and we need to move our way down the technology cost curve and the only way to accelerate that timeline is to provide that kind of subsidy.
The fact that pricing is lower for nature-based removals is more a reflection that the cost of these projects is lower compared to the cost of these technologies.
Regarding co-benefits, supporting communities and ensuring that revenues are split across different stakeholders, that is starting to get paid for in the price of carbon as well. So if you’re spreading the revenues across indigenous communities many developers are starting to see the market pay a premium for this activity, and so in some ways that type of work is starting to pay for itself. While I’m sure that there’s a lot of inefficiency, it does feel like the market is moving in that direction. If we can figure out a way to reduce the friction within the carbon markets to allow market actors to better discern good activity versus bad, our hope here is that you’ll see direct alignment between the amount people are willing to pay and not only the financial liabilities of projects, but the impact of those projects.
ImpactAlpha: We always like to point out that carbon offsets are never a substitute for actually reducing your emissions. But when companies have these very hard to abate emissions that there aren’t really good solutions yet for, it is a good bridge. And it can’t be a terrible thing if you’re shifting money from wealthy corporations to land stewards. Let’s talk more about climate justice. It means different things in the U.S. perhaps than abroad, but there’s a common thread in listening to communities and making sure that they benefit from these investments.
Belazis: Climate justice is very much front and center when we’re thinking about how we’re tackling climate change. We want to make sure that poor and vulnerable communities are factored into that equation. So whether it’s supporting indigenous communities in the Amazon or elsewhere, or in this country, we’re seeing lots of really interesting opportunities that thread the needle between racial injustice and climate justice. There are very interesting companies, like Aclima, which is a data company that is allowing people to measure carbon density in cities.
Coincidentally enough, the areas with the most carbon density happened to be low-income areas, which is not a healthy thing. And so companies like that are actually enabling interventions to decarbonize communities and make them better places to live. Other companies like BlocPower are providing technology to enable energy retrofits while also providing the financing to support that.
So we’re seeing some really interesting ideas in this country and globally, and we’re really excited to see what else comes to the fold.
