St. Anthony: McKnight Foundation will stop investing in fossil fuels

The McKnight Foundation, an early investor in nascent climate solutions, has doubled down on its commitment to a lower-carbon economy.

Now, on the eve of the United Nations Climate Change Conference in Scotland, the private foundation has committed to shift its investments across its $3 billion portfolio to companies pledging to dramatically reduce greenhouse-gas emissions.

"Eliminating the greenhouse-gas impact of our endowment allows us to employ all of our foundation's resources to address climate change," McKnight Foundation President Tonya Allen said. "Foundations sit on over $1 trillion of potential climate solutions."

The investment to drive change has led to advanced technologies and related Midwest job growth.

More than 40% of McKnight's $3 billion portfolio is made up of "impact investments," including more than $500 million committed to technology, software and services to decarbonize the economy.

Foundations must spend at least 5% of their endowments annually, which means McKnight must spend about $150 million this year. The foundation, one of the largest in Minnesota, was founded in 1953 by William McKnight, who was chairman of 3M, and his wife, Maude McKnight.

Elizabeth McGeveran, McKnight's investment director, said working with asset managers to green the $3 billion portfolio is a progression of past work.

"We have been on the path to decarbonizing our portfolio since 2014," McGeveran said. "We're heading toward a final destination. And we invite institutional portfolio managers to think about this."

McGeveran pointed out, for example, that McKnight has worked with its U.S. fund managers to exit and avoid future investments in ventures involving Canadian tar-sands oil, considered the most polluting crude.

She also noted that studies show that companies committed to the high environmental, social and governmental standards (ESG) also are equal-or-better performers than peer averages.

"We're not sacrificing financial performance with this strategy," she said.

In 2019, McKnight investments generated 1.9 million megawatt hours of renewable energy. The company is investing through private asset managers in wind, solar and battery storage. One of its managers is Generation Asset Management; a founder is former Vice President Al Gore, an early climate-change seer and backer of renewables.

McKnight invested early in Proterra, now a publicly held electric bus maker in California.

"It's the Tesla for buses," McGeveran said. "We also have an asset manager who is financing conversion of 50% of the Norwegian ferry fleet to electric. One of our asset managers is helping finance that."

And McKnight invested millions in PosiGen Solar, the Louisiana-based company that leases solar panels to low-to-moderate income homeowners, as well as providing energy-conservation makeovers. Homeowners pay lease payments out of the savings.

"They are the largest solar installer in Louisiana," McGeveran said. "PosiGen serves those who are overlooked by other solar companies and it also creates jobs. Our funds are full of stories like that."

Another investment, Convoy, uses software that helps truckers and shippers reduce the number of miles that trucks deadhead without freight, increasing profitability and energy-efficiency.

There has been increasing recognition of the environmental devastation and economic opportunity of climate change in business and investment management.

The Ford Foundation last week decided to divest from fossil fuel investments. The MacArthur Foundation last month took similar steps. And several colleges, including the University of Minnesota and Harvard University, also have decided to make investments that decrease greenhouse-gas emissions.

McGeveran and Ted Staryk, a longtime McKnight board member and business owner, said the investment community is responding to climate change. An evolving challenge is for investment managers to measure and track the carbon output of companies they hold.

"That standardized accounting practice is not yet in place," Stayrk said. "Net zero is the destination but we're not entirely clear yet exactly which road we're going to travel. It's up to the [asset managers and companies] to deliver that kind of data."

Last week, the International Corporate Governance Network (ICGN), led by investors responsible for assets under management of nearly $59 trillion, petitioned the upcoming U.N. Climate Change Conference.

It wants government public action plans to fund and achieve "net-zero carbon emission targets, including carbon pricing, eradication of fossil fuel industry subsidies, phasing out coal-based electricity generation and come in line with the 2015 Paris agreement on climate."

The group is asking investors to commit to science-based targets on how investment portfolios will achieve net-zero carbon emissions by 2050, improve quality of climate-related disclosure, and integrate financial, natural, and human capital considerations into stewardship activities across asset classes.

It challenged corporations to abide by climate science and achieve net-zero carbon emissions by 2050.

"Publicly commit to science-based targets on how the business will adapt to net-zero carbon emissions by 2050 aligned with company purpose and long-term strategy," the ICGN members said last week. "Transition plans should include assessments of physical, transition and liability risks and opportunities based on climate change scenario analysis."