Staying the Course in Funding Climate Change Solutions

Investing in tackling climate change is one of the most significant actions that governments and philanthropic funders alike can make today. Painstaking scientific research gives ample reason to fund these efforts—research shows that we have hit the highest-ever concentrations of carbon dioxide in the atmosphere in all of human history. Accordingly, President Obama’s budget to cut carbon pollution for the 2016 fiscal year is $7.4 billion; and the Green Climate Fund, the financial mechanism established as part of the recent Paris Agreement, has raised $10 billion to address climate change. Philanthropies are also stepping up.

The urgency with which we need to mitigate climate change certainly warrants all this attention, but I’d like to send out a word of warning to funders and urge them to stay the course with the investments they choose to make. New funding for environmental programs and policies is great news for nonprofits and NGOs. However, their ability to remain in the game—and thereby create meaningful impact—is largely dependent on reliable and diverse funding sources. If funders change policy or strategy too regularly, nonprofits get left out in the cold, struggling to survive, and this vastly compromises their ability to deliver on their promises to cut greenhouse gas emissions. This is a serious issue, with long-term consequences for the environment.

Just this month, the UK government announced the closure of the Department of Energy and Climate Change—a move that will no doubt have a significant impact on NGOs. The Australian government regularly changes policies, including scrapping its climate change agency (not once but twice), and cutting funding for climate science and emerging renewable energy technologies. Meanwhile, philanthropists aren’t always sure where to invest; they often look for the next promising innovation rather than fund tried-and-true solutions like energy efficiency. They are also more likely to switch or reduce investments if they are not seeing immediate benefits. This fickle-funding scenario makes nonprofits and NGOs in this sector incredibly fragile and limits their ability to achieve critically important goals like cutting global emissions.

I am all too familiar with the impacts of such decisions after spending more than five years leading a nonprofit organization focused on reducing industrial greenhouse gas emissions. A group of philanthropies founded our organization, the Institute for Industrial Productivity (IIP), in 2010 as one in a network of several nonprofits working to solve the climate crisis. Each of the nonprofits was set up to work with governments, society, and the private sector to spur dramatic changes in energy generation and use, transportation, urban design, and resource management. In creating IIP, our funders wanted to move quickly and boldly to reduce emissions from industry, rightly believing that we have limited time in the fight against climate change and that decisive actions are necessary. After all, in most countries, the industrial sector is the largest energy-consuming sector. In the United States, it accounts for 31 percent of primary energy; in China, 75 percent; and in India, 68 percent.

Our work centered on promoting best practices in industrial energy efficiency policies that could target energy-intensive firms in the cement, iron, steel, and chemicals sectors, and help them reduce emissions through measures to reduce energy use, recycling, and reuse of waste heat and by-products. In the manufacture of cement, for example, the Organisation for Economic Co-operation and Development countries are very advanced in the use of municipal and other wastes as a substitute for coal. To bring the Indian cement industry to this standard of clean technology, we worked with the cement companies and the government to help overcome technical barriers and enact new policies. To meet our main goals, we initiated projects and partnerships with leading organizations around the world, including the Bureau of Energy Efficiency in India; cement, chemicals, and steel associations in China; the Clean Energy Ministerial global forum; the United Nations Industrial Development Organization (UNIDO); the United States Department of Energy; and the International Energy Agency (IEA).

At its peak, IIP had 20 fulltime-equivalent personnel, and offices in Paris, Beijing, New Delhi, and Washington, D.C. We chose these areas because the manufacturing sectors in China, India, and the United States are collectively responsible for more than 50 percent of all global industrial emissions (3,000 million tons of greenhouse gases per year). IIP worked on securing policies that would deliver a reduction of 355 million tons of emissions every year by 2020. In India, we developed a knowledge-exchange platform in partnership with the government to help its flagship climate program, Perform, Achieve and Trade, which was directed at industry. In China, our team helped the government develop guidelines for banks on investing in energy efficiency projects. In the United States, IIP played an active role in promoting industrial energy efficiency, and combined heat and power, as ways of meeting the obligations of the Environmental Protection Agency’s Clean Power Plan. In recent months, IIP’s website and databases on best practices in industry were logging up to 45,000 visits per month from a global audience.

IEA, UNIDO, and other experts well familiar with energy efficiency in manufacturing understand that the pace of innovation in this sector is slow. Further, they know the best way to accelerate it is by building an effective, multi-stakeholder ecosystem that enables widespread adoption of best practices through standards such as ISO 50001, an enterprise-wide process for firms to manage their energy efficiently that IIP actively promoted. But in 2012, after the failure of the COP 15 Copenhagen talks and general disappointment with overall progress on climate change, some of the philanthropic funders of IIP drastically altered their funding priorities. Their new priorities emphasized advocacy and disruptive, transformational changes and innovations.

And so just two years in from IIP’s start up, fundraising became an insurmountable challenge. We also faced another serious problem: Our primary funders collectively changed the grantmaking process. Instead of directly funding IIP and other best practice-focused nonprofits, the new philanthropic model left the funding for IIP entirely to the discretion of intermediaries—independent regional grantee foundations. Since regional foundations were also struggling with reduced budgets and competing priorities, IIP was unable to raise the required funding from them. With only a year’s grace for IIP to transition to a new fundraising model, it became impossible for IIP to maintain its original structure and mission.

Despite evidence that proven technology such as energy efficiency could reduce carbon dioxide emissions from industry by 25 percent, IIP struggled to convince philanthropies that its approach was important.

To make up for the loss in funding from its founding philanthropies, IIP began making drastic cost-cutting measures and started raising consulting revenues from fee-for-service projects. Despite the success of this work, it was difficult to sustain the organization exclusively through these revenues. Core funding to cover 30-40 percent of our overall costs for an additional three years would have helped us survive the intervening period while we built a bigger stable of fee-for-service clients.

Funding cuts were out of sync with the growth of our fee-for-service work, which was growing steadily.

Unfortunately, IIP is not the only NGO or nonprofit to face this challenge—many others are also at risk. Another nonprofit founded by the same philanthropies that funded IIP, with a focus on reducing emissions from buildings, is also winding down. In the UK, a leading agency focused on accelerating the move toward a low-carbon economy had its funding cut by 40 percent in 2011, causing the cancellation of various projects and dozens of redundancies.

While it is greatly disappointing to stop our work after investing considerable resources and making such a positive contribution to improving industrial energy efficiency, I am pleased that we were able to secure the future of our main assets and services through new arrangements, such as the continuation of the India office, which will become a standalone NGO, and passing on our award-winning databases to the very capable Copenhagen Centre for Energy Efficiency. But as IIP closes its doors, it leaves behind it a gaping hole. No other nonprofit is committed to, and exclusively focused on, reducing industrial greenhouse gas emissions.

Industry’s energy use is too big to ignore and, presently, a range of barriers hamper government and industry efforts. Steadfast, smarter grantmaking is a critical part of making nonprofits and NGOs resilient. By funding climate mitigation initiatives for the long-term, philanthropists today can have an unparalleled influence on the destiny of our world and society. While I know they are eager to see their investments catalyze positive change, I urge them to allow nonprofits more time to realize their missions.

Read more stories by Jigar V. Shah.