A Crash Course in Climate Finance #2

Part 2: Philanthropic Capital

The use cases for philanthropic capital and the available sources are crucial yet underdiscussed aspects of financing the energy transition. The word most frequently mentioned in discussions of philanthropic capital for this piece was catalyst. Whether the capital is intended to support a company as it scales up or to leverage existing technology in a new space, it should not be viewed by the recipient as an end in itself. Instead, by leveraging philanthropic capital to support early-stage companies, investors aim to generate exponential returns in areas such as carbon reduction, renewable energy development, and job creation.

A conversation with Alina Shkolnikov, Chief Partnerships Officer at PollyLabs, outlined the intersection of philanthropic and private capital required for larger, industry-shifting developments. Shkolnikov explained how PollyLabs uses proven technologies to implement solutions where they exist but are not readily applied. Rather than the long-shot technologies often favored by traditional venture capital, as described in part 1 of this series, Shkolnikov and PollyLabs are adapting proven technologies to new areas. As this represents a substantially lower risk than bringing an unproven technology to market, traditional forms of capital can be readily leveraged to broaden adoption.

One significant tool in bringing philanthropic capital into the decarbonization capital stack has been the donor-advised fund (DAF), which has thus far proven a strong option for clean energy projects that are unable to secure capital from more traditional sources. The Sierra Club Foundation explained that the benefits of DAFs lie in their flexibility, tax incentives, and administrative advantages. As these are well-suited for families and individuals, they align closely with the role of angel investing, but through a philanthropic lens that supports technology that may not have significant expected returns or product-market fit.

Janet Brunckhorst, founder at Southstar Consulting, explained that philanthropic capital has the patience and willingness for risk that is crucial in getting early-stage, hard tech start-ups off the ground. Brunckhorst explained that this is particularly the case for DAFs, as the funds have already been granted and no financial return is expected. Brunckhorst noted the importance of those establishing DAFs to understand how they can be used, such as for investing in for-profit climate solutions. It is essential to note the role that intermediaries, such as Realize Impact, Neta Foundation, CataCap, ImpactAssets, and Prime Coalition, play in accepting DAFS grants to make private investments and serve as the investor of record.

Alongside private capital, grants have proven to be an effective source of early-stage philanthropic capital for climate entrepreneurs. Organizations such as the Massachusetts Clean Energy Center (MassCEC) primarily rely on grant financing to support the growth of clean energy companies across the state. As Galen Nelson, Chief Climate Officer at MassCEC, explained, one significant benefit of this strategy is that it provides companies with the runway to develop into entities capable of securing external funding. Nelson outlined that potential investors prefer to see that companies are generating profits and often do not want to fund demonstration projects. This has proven a successful formula, as the 350 million invested by MassCEC in start-up companies has generated over 2 billion in additional private investment.

Alongside grants, public capital can be used as the base of a much larger capital stack, reducing risk for private investors while still acting as a catalyst. This practice was explained by Lisa Kurbiel of the UN Joint SDG Fund, who noted that UN financing can serve as an initial investment and first layer of capital, thereby encouraging broader participation in the capital stack. This fund serves as a private investment channel for emerging markets and development banks. It is essential to distinguish the UN Joint SDG Fund from the philanthropic funds discussed later, as the SDG Fund continues to seek returns; the similarity lies in supporting companies that are developing technologies or markets, without prioritizing short-term returns.

Beyond traditional grant-making, public capital can be used strategically to shape the overall financing architecture for sustainable development. The UN Joint SDG Fund plays this role by serving as a foundational platform that brings together diverse sources of capital around shared development objectives. As explained by Lisa Kurbiel, Head of the Joint SDG Fund Secretariat, UN financing is often deployed as an initial commitment to build confidence, align partners, and facilitate broader participation by development banks and private actors.

In this sense, the Joint SDG Fund functions as an enabling mechanism for investment in emerging markets, using public capital to de-risk, reduce barriers, and mobilize additional resources in support of sustainable development. It is important to distinguish this role from that of philanthropic funds discussed later. While both support innovation and new technologies or markets, the Joint SDG Fund remains focused on sustainability and long-term impact, rather than short-term returns, using its capital to catalyze scaled and coordinated action across sectors. In this context, its values also lie in strategically using public capital to crowd in significantly larger pools of investment that would otherwise not be deployed.

Putting philanthropic capital to use has shaped industries worldwide. Abigail Napsuciale Heredia, Head of Investments and Co-Founder at ATTA Impact Capital, a nonprofit operating primarily in Central America, seeks to support the “missing middle” of climate companies. The smaller ticket size (~100,000 USD) is meant to catalyze capital. The idea that smaller-ticket grants and philanthropic investments can yield several times as much private investment in the future is a core aspect of the philanthropic investment system. When asked about the criteria for funding, Heredia explained that these companies must have positive revenue and a measurable case for impact in the region.

When writing this series, the primary goal was to help founders identify which area of private finance would be most suitable for them at their current stage. Founders interested in philanthropic capital should view such funding, whether from a DAF, a grant, or a foundation, as a stepping stone. By leveraging philanthropic capital, these companies can develop or refine their products, achieve market fit, and expand their market share before turning to more traditional investors for large-scale growth.