Q&A with Leslie Johnston: Rethinking philanthropy’s role in a shifting international financing landscape
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The international climate philanthropy space is rapidly evolving as foreign aid shrinks even as the pressure to meet NDCs and maintain resilience grows. To understand what this shifting landscape means, Dr. Rhian-Mari Thomas, CEO of the Green Finance Institute, spoke with Leslie Johnston, CEO of Laudes Foundation, to get her views on how philanthropy continues to support the green finance value chain, improving institutions, designing new policy and creating innovative finance mechanisms that can mobilise private capital.
RMT: How is climate philanthropy changing and where do you think it is heading?
Leslie Johnston: I feel that we are at a real inflection point when it comes to the philanthropic sector and its role in accelerating climate action. On the positive side, we are seeing philanthropic funding for climate mitigation increase. According to ClimateWorks, it grew by 20 percent in 2023, which is encouraging[1]. This has been driven by the rise of new, bold and ambitious climate foundations. Several of the biggest players in this space are less than five years old.
At the same time, it’s not enough. Climate funding is still a fraction of total philanthropic capital, especially towards mitigation – at just 2%. Adaptation gets slightly more attention, because it overlaps with humanitarian work, but overall, it is tiny[2].
Moreover, the global context in which we as funders are operating is shifting. Public funders are pulling back. Economic uncertainty is growing. Civil society is getting squeezed. And the challenges that we, collectively, are trying to tackle are getting harder to solve. It’s now clear that we are no longer facing a choice between climate mitigation and adaptation. Having surpassed the 1.5-degree limit set out by the Paris Accord, it is both. It’s about building resilience – of our partners, of the communities they serve, and even of the businesses and industries we are working to transform. And to do that, we need to make these transformations investible.
RMT: Let’s explore that, how is philanthropy evolving to support the flow of green finance and create an effective value chain?
Leslie: Philanthropy has a crucial role to play in creating the conditions for green finance to move to where it needs to. Done well, it can help shape policy frameworks, demonstrate viable investment models and unlock longer-term capital. There are many ways philanthropy can do this. At Laudes, we often play the role of bringing unlikely allies together – such as brands and retailers, innovators, manufacturers, investors – in order to demonstrate that, say, an innovation to tackle carbon or waste in the fashion industry can work and unlock the finance needed to scale. That’s what we do at Fashion for Good, which, since its founding seven years ago, has unlocked over $2 billion to scale green innovations for fashion.
At the same time, we recognise that we need to unlock significantly more investment to enable just transitions across industries such as fashion, the built environment or even food. In fact, at least $3-5 trillion is needed per year. And to do this, we need to change the rules governing finance, which we do via partners who work to enable the right policies, regulations and industry norms. Central banks, for example, have a duty to maintain market and price stability and can use their buying and regulatory powers to influence the whole financial system. Through partners like the Council on Economic Policies (CEP), New Economics Foundation, Positive Money Europe, and Sustainable Finance Lab, we have supported work that has been instrumental in removing the barriers to central banks acknowledging and acting on climate risks.
And risk is the key word here. Take water risk, for example. It’s becoming a very real financial issue. When you have floods like those in Valencia, not only is there a tragic human cost, it also hits P&Ls hard. We need more philanthropic work that shows how climate and nature risk directly affect fiscal performance, not just long-term scenarios. As your team at the GFI quantified, nature degradation could cause a 12% loss to UK GDP under a plausible future scenario, larger than the hit to GDP from the global financial crisis or Covid-19[3]. Making the impact on nature an undeniable economic risk can spark action throughout the value chain.
RMT: Where does venture philanthropy fit into this broader shift?
Leslie: I have always been a champion of venture philanthropy, and in addition to leading Laudes, I serve as Chair of Impact Europe, the membership body bringing together 300+ venture philanthropies and impact investors. To me, venture philanthropy can play a unique role of derisking investments so as to attract larger, more commercial investors. At Laudes, we did this with the Good Fashion Fund, in which our anchor investment created the right conditions for two additional investors to come in.
At the same time, venture philanthropy is simply one tool (of many) and should be used only if a foundation believes it can greatly deepen one’s impact. Like commercial venture funds, venture philanthropy also tends to come with tailored, hands-on support to the investee, ultimately helping to strengthen the field of impactful social enterprises. I certainly see a role for venture philanthropy in the emerging investment opportunities around climate adaptation and resilience solutions.
RMT: Many funders still focus only on grant making. How do we shift mindsets towards endowment alignment and longer-term investing?
Leslie: Indeed, philanthropic foundations are well positioned to create impact both via their core grantmaking and via their investments, as foundations such as Rockefeller Brothers Fund or Wellcome Trust have demonstrated. But still only a small percentage of foundations align their endowment investments with their mission.
This is (slowly) changing, and I was particularly inspired by an op-ed last year by Kieron Boyle, Chair of one of our partners, The Impact Investing Institute, where he called out the as-of-yet-unrealised opportunity in the UK for charitable endowments to invest intentionally for impact.
What is particularly encouraging is that more organisations – like Confluence Philanthropy in the US or Impact Europe and Philea in Europe – are helping foundations better understand the opportunities (and risks, of course) of embedding a strong impact ambition across all their investments – from grants to endowments. But we still have a ways to go.
RMT: Let’s talk about emerging markets. What role does philanthropy play in building enabling infrastructure and institutions?
Leslie: Philanthropy can play a unique role in building the early architecture for climate transition in these markets. This could mean funding capacity building of local institutions, enabling important policy dialogues or developing the financial mechanisms which can unlock more private capital.
For example, recognising Asia’s increasing vulnerability to climate events (like floods and extreme heat), our partner AIGCC (the Asia Investor Group on Climate Change) has created a working group to help investors understand and embed resilience considerations within their investment strategies. Given the reach of this group (investors across a dozen markets with over $35 trillion in AUM), such an initiative has the potential to tip significant investment toward adaptation.
What’s particularly exciting here is how local philanthropy is rising to this challenge, and we are proud to collaborate, for example, with key players like the India Climate Collaborative, who is working to strengthen the local philanthropic architecture to play this catalytic role.
RMT: So, it’s not just about stop-gap funding. It’s about catalysing bigger shifts?
Leslie: Exactly. Philanthropy is best positioned to influence the rules, mindsets, and even power dynamics which can catalyse such bigger shifts. And by doing so, we work to inspire business and industry to transform how they work. We work to unlock private and public finance at scale to accelerate these transitions.
Yet to do this well, philanthropy needs to be patient and act for the long-term. Philanthropy needs to build the resilience of its partners, many of whom are on the frontlines of change. And philanthropy needs to take risks, showing what’s possible and enabling the innovation that can help green finance to flow.
This article was originally published in the June edition of Green Finance Quarterly. Read the full publication here.
[1] ClimateWorks Foundation – Funding trends (2024)
[2] ibid
[3] Green Finance Institute – Assessing the Materiality of Nature-Related Financial Risks for the UK (2024)
