Responsible Investing

A Look at how BQuest Foundation has designed their investment portfolio to reflect their values, and how you can, too

 

This Thursday, April 22, millions of people across communities worldwide will celebrate Earth Day, marking more than 50 years of this day of celebration and commitment to climate action and preservation. 

Days of celebration, commitments to action, and convenings at all levels are indeed looked to as markers of progress, but what further can funders do to ensure their actions are not causing unintentional harm to our environment? Across companies, institutions, and foundations, an increasingly popular conversation has been focused on divesting from fossil fuels as one way to wield economic power in combating climate change.

While a growing conversation, honing the approach to fossil fuel divestment has been a focused and intentional journey for Catalyst member the BQuest Foundation for several years. BQuest’s mission is to fight the climate crisis by funding projects and partnering with organizations that reduce carbon emissions, expand the use of renewable energy, and advocate for the policy changes we need to transition to a carbon neutral future.  

“From the founding of BQuest, we knew that we cared about the climate and a sustainable future and didn’t want to be invested in fossil fuels,” Kara Ballester, co-founder of BQuest told Catalyst. But, as she explains, seeing that intention through can be filled with a bit more nuance than meets the surface. “The fossil fuel divestment movement is growing all the time, but headlines about the UC system locally and other organizations around the globe going fossil fuel free tend to skip over a lot of complexity,” she explained. 

We recently sat down with BQuest Foundation founders Kara and Andy Ballester to better understand the actual steps that go into applying an environmental stewardship lens to your investments. We peppered Andy and Kara with our questions and they didn’t hold back! Their thorough, helpful, clear guidance can be adapted to any foundation’s investment portfolio and we hope it will encourage you to consider your own investment strategy. Settle in and take a look at what we learned: 

 

Q: In the most basic of terms, what does a fossil fuel free investment portfolio mean? What do investments look like?

You might think that “fossil fuel free” seems pretty straightforward and shouldn’t require too much explanation, but it’s actually been quite the learning process! For some divestment campaigns and investment vehicles, it means not investing in a list of the top 200 fossil fuel companies by reserves (The Carbon Underground 200), or screening for coal, fracking, or tar sands only, or some other metric. What most people probably assume it means is no investment in companies that own fossil fuel reserves, that extract, refine, or transmit fossil fuels, or that burn fossil fuels to produce electricity. That’s the definition that made sense to us and that we decided to use in our investment policy statement.

We also went a step further to analyze our foundation’s investments by carbon intensity. Just because a company doesn’t actively extract fossil fuels or burn them for energy doesn’t mean they aren’t still responsible for a lot of greenhouse gas emissions being released during their normal course of business. Some sectors and industries are just more carbon intense than others: concrete manufacturing and the building industry have a surprisingly large carbon footprint as does agriculture, for example. However, rather than cutting entire sectors from investments, you can look within sectors to see who the “best” players are when it comes to carbon intensity and invest in those.

We do this by running a portfolio analysis of all of the companies we are invested in and get a total carbon emission per dollars invested intensity metric. We look for companies that are outliers in intensity for their industry. We then divest from those high impact companies. That has allowed us to get to an intensity metric three times lower than the benchmark of the S&P. 

 

Q: How do you measure carbon emissions from your investments?

More companies are reporting on their carbon emissions and environmental impact as more and more investors and their clients request it. However, not all are. We try to avoid investments that don’t report, for obvious reasons, but once again, it’s difficult to completely avoid at this point until more reporting becomes standard.

It’s also helpful to learn more about what type of emissions a company is reporting. This is where it gets tricky because any company is going to be involved in some sort of carbon emissions somewhere in their supply chain or in their course of business. This is referred to as Scope emissions. Scope 1 and 2 emissions are the most widely reported and cover all direct greenhouse gas emissions that occur from an organization’s activities that are under their control, as well as indirect emissions from the generation of energy that an organization purchases. What some companies are not yet reporting or setting targets for, but that is a really important piece of information, are their Scope 3 emissions: all indirect emissions that occur in the value chain of a company’s operation, both upstream and downstream. Think business travel and employee commutes, waste generation, and emissions from purchased goods and services. For many companies, their Scope 3 emissions dwarf their Scope 1 and 2, so leaving out Scope 3 emissions paints an incomplete picture.

 

Q: Did you encounter any issues pursuing this? What were key hurdles and how did you work through them?

The biggest hurdle to doing this is data. When we started this process three years ago, a lot of the data was incomplete. Every year, we are seeing better data in this space – more companies are reporting their carbon emissions, more investors are asking the same questions that we are, and more banks and advisors are having to build and apply the analytic tools that are required to look meaningfully at the data.

Q: What prompted BQuest to pursue a fossil fuel free portfolio? Why is this important to you?

BQuest has a mandate for decarbonization. If we are not pursuing that mandate through all the external impact we are making as an organization, including investments, we can’t faithfully say we are working towards our goal. We are firm believers in using all assets of the foundation toward our mission, not just our grantmaking. That means it’s really important to us that our investments are not working against our mission.

Although BQuest has a mission to prevent the worst effects of the climate crisis, we don’t think you need to be an environmental grantmaker to be involved in the fossil fuel divestment movement. The Intergovernmental Panel on Climate Change (IPCC) says more than half of the known coal, oil, and gas reserves have to be kept in the ground in order to meet the Paris Climate Agreement – reserves that the fossil fuel industry is banking on extracting over the next several decades and beyond. The fossil fuel industry’s biggest companies are still projecting increases in their emissions when we should already be making dramatic cuts. The growing fossil fuel divestment movement sends a strong signal to the industry that their current business models are unacceptable and have put society on a collision course with a climate crisis. For us, it’s a moral issue, but many investors might also be concerned about the sustainability of the industry itself.

 

Q: Can anyone do this?    

Anyone can be more purposeful in their investments. It’s not going to be perfect immediately – that’s ok. We set periodic meetings with our team to improve how we are invested with the goal to get better each time. 

 

Q: How critical was your banking relationship in making this happen? (Who was the team behind doing this?)

Our banking relationship was critical here. Our Bank of America team needed to be involved to not only help us develop a methodology to look at the data but to also divest/reinvest where changes needed to be made. It really helped that our investment team members were already experienced leaders in socially responsible investing, sustainability, and philanthropy. They were excited to work with us to try new tools and dig deeper into the data. We hope our work with our investment team will help pave the way for more investors and clients to divest from fossil fuels. 

 

Q: What advice do you have for other investors seeking to do the same?  (Or, how would others go about adopting your screen or method to their portfolio?)

Think about what divesting from fossil fuels means to you. You can start small by screening for certain types of companies and refine your definition over time. Talk to your investment team about getting the right data in house and then set yearly goals for how you want to improve your investment thesis each year. The good news is that the fossil fuel divestment movement is growing all the time, as are the tools and investment options available.