Risks don’t come any bigger than the danger that climate change will become irreversible. The European Climate Foundation (ECF) serves as a conduit for the climate change mitigation funding of a group of European and US foundations, regranting the majority of that funding to NGOs, think tanks, and coordination platforms engaged in advocacy efforts aimed at reducing Europe’s greenhouse gas emissions and helping Europe to play a stronger international leadership role in mitigating climate change. In this field, the real risks come from failing to act, CEO Johannes Meier tells Caroline Hartnell.
What do we mean by risk in the context of foundations?
There are two types of risk, strategic and operational. Strategic risk is linked to whether foundations have sound aims and the right approach to achieving them. Operational risk is linked to the effectiveness of the foundation in delivering their strategy – we’re talking about legitimacy risks, organizational risks, reputational risks, financial risks and so on.
For me, the key point about strategic risk is that it’s linked to a robust theory of change. If there isn’t an explicit theory of change, one can end up encountering all kinds of strategic risks without even knowing it. For example, foundations often develop a model project, eg for improving early childhood education, on the assumption that policymakers will take on the scaling up. I think we all know that the scaling up tends not to happen automatically. Thus, when thinking about foundation risk, it is important to start by asking how the type of change envisaged by the foundation links to a theory of change that includes implementation of the intended change.
What advantages do foundations have vis-à-vis other development actors when it comes to taking risks?
The big advantage of an endowed foundation is that it can take a long-term view. Foundations don’t have to use the typical discount rate – the factor by which a future cash flow must be multiplied in order to obtain the present value – approach of business in setting priorities. Jeremy Grantham has written about ‘the tyranny of the discount rate’, which means that many investment decisions neglect long-term effects, for example on the livelihoods of our grandchildren and beyond.
There is a downside to focusing purely on the long term, however: when it comes to making a tangible difference, it makes little sense to take a long-term approach without building credibility and capability in the short term. As I see it, it is a mistake to think that by taking a long-term approach one has already done the right thing. It takes a lot of investment and effort to build up the necessary credibility and competencies for understanding how to handle the practical transition to the long term.
Is the concept of ‘high risk/high gain’ action particularly applicable to action on climate change?
Yes and no. I think this is really a question about what constitutes good strategy. With climate change, as with any change that affects humanity on a large scale, it’s important to recognize that there will not be one silver bullet. Good strategy will necessarily involve a portfolio of initiatives, balanced in multiple dimensions. It is not enough to look at initiatives just in terms of high or low risk or high or low impact.
There is an important lesson we can learn from innovation management in the high-tech industry, where managers understand that you don’t put all your eggs in one basket. Rather one starts to develop a portfolio view by analysing carefully what competencies of the organization and familiarity with new technologies allow for which type of change. Similarly, with big challenges like mitigating climate change or improving education, we need to be clear what type of change is necessary and how the philanthropic spending enables this change. That may well lead to the conclusion that the portfolio should include capacity building of NGOs, building political will as a prerequisite for change, or even mobilizing financial flows into infrastructure investments.
Do you have in mind any sort of quota of ECF’s grantmaking that should be ‘risky’?
Our funds come from foundations that channel their climate change mitigation funding through us, so the ECF is in essence a strategic programme and not an endowed foundation. When we talk about good strategy we have to make sure that our understanding is shared among the ECF staff, our grantees and our funders; that we learn from our successes and failures. So we start with an analysis of the political context and an articulation of our theory of change: where do we think we can make a difference? This translates into a mix of initiatives. Some are geared towards capacity building, some to comparing policy alternatives; some are very practical, like supporting political communications and framing narratives to build public support. As long as our funders and partners understand what we’re doing and we learn from what does and doesn’t work, I think we are on the right track. But this cannot be captured in one single metric of risk.
As you’re not an endowed foundation, I assume you don’t have the luxury of being able to enter long-term ventures unless you have the specific commitment of your funders.
Most of our initiatives have three- to four-year lifespans, but they have annual milestones, and we interact intensely with our funders about whether these milestones have been reached or whether we need to adjust our goals. Mitigating climate change is not a sprint, it’s a marathon, and building up the capability for the marathon in the field beyond the ECF is probably one of the most important roles we can play.
It is often suggested that the emphasis on achieving identified outcomes discourages foundations from taking risks. With climate change, do funders have to accept that they won’t be able to predict outcomes as much as in some other areas?
I’d challenge the assumption that in other areas the outcomes are so easy to measure. I have worked a lot in education and I know that once the scope of programmes widens from the local to the national, a lot of the outcomes are very hard to measure because many context variables are outside our control.
In fact, climate change lends itself to impact measurement because carbon emissions can be tracked. The policies that affect emissions can be modelled with scientific methods and innovations can be evaluated with the help of these models. So we have a lot of empirical tools and data to evaluate impact. The challenge is finding the right attribution of the role of the foundation in a major transition. When it comes to changing a complex system, it’s always hard to say what led to the change because many actors are involved. This comes back to an explicit theory of change, why a certain type of investment or stream of investments will lead to a change. Based on this, we can devise milestones, many of which will be activity-based and thus easy to measure. For me, a central medium-term measure of impact in a long-term process like climate change is an organizational measure: how fast are we learning, as a field of actors involved in pushing new ideas, to accelerate implementation of the necessary change?
Does the ECF have a conceptual framework and metrics to determine whether a grant is risky or not?
Our notion of risk is probably not typical. We believe that a lot of the investments we make are simply necessary given the need for change. Not making them would be the risk because it would mean accepting the extinction of many species, major hardship for billions of people, etc. With climate change, identifying what is necessary helps you to prioritize and leads to a lot of long-term capability-building investments. Other foundations would probably see these as high risk, but we see them as necessary; we don’t have the choice not to do them if we want to avoid the risks of global warming.
And that takes us back to the question of missed opportunities.
Exactly. If you run a business only with a short-term view, you risk losing your customers and ultimately you will not have a business. Here is the analogy: if foundations do not address the big issues relating to climate change that would be really risky.
The biggest risk to foundations is that they become irrelevant because they don’t tackle the big, long-term issues, the political failures, the economic failures, the social failures, and the intellectual failures of short-term thinking. It’s not enough to rest content with a local project, which will look good but has only limited effect. I think the potential missed opportunity for some foundations stems from their not being ambitious enough.