Politics, Philanthropy, and Patagonia: 2022’s Climate Change Reckoning
Patagonia founder Yvon Chouinard gave his shares of the company to a collective that will fund climate change nonprofits. Source for photo: Retail TouchPoints
Patagonia has a history of corporate climate activism. Since 1985, the outdoor fashion icon has given away 1% of its profits to environmental causes. That amounts to a total of $140 million it has given to grassroots environmental organizations, targeting organizations that help preserve the land, water, climate, communities, and biodiversity. Patagonia uses 100% sustainably sourced cotton and makes 98% of its products from recycled materials. Patagonia also solely relies on renewable energy and offers free repairs on their apparel.
Their company philosophy can be traced to its origin. Yvon Chouinard, the company’s founder, is an anti-business businessman who “didn’t ever want a company.” A lifelong climber, he created his own climbing equipment in the late 1950s, selling it out of his truck in Wyoming. After discovering the comfort of rugby jerseys in 1970, he began importing them from Scotland to sell to climbers. It was then that Patagonia, the now $3 billion apparel company, came about. All the while he maintained his disdain for business: “it’s business that has to take the majority of the blame for being the enemy of nature.” Chouinard has, for years, expressed his discomfort with his own wealth; his children similarly believe billionaires are policy failures. When Forbes named Chouinard a billionaire in 2017, Patagonia representatives were quick to express the company’s strong opposition to his inclusion on their list.
In 2020, a group of the company’s lawyers began searching for alternate ownership methods to answer the question of Chouinard’s eventual succession. Chouinard wanted to “go purpose,” not public. Going public would have been chaotic, in his eyes, because shareholders’ motivation for short-term profit would have drowned out the company’s mission of sustainability and workers’ rights. Selling the company and donating the proceeds, likewise, would not have guaranteed that their values would remain in place.
So, Patagonia gave the company to the Earth. Chouinard and his team of advisors landed on giving all stock to two newly established trusts to combat climate change. They will transfer all voting stock — 2% of the total shares — to the Patagonia Purpose Trust, created to ensure that the company maintains its commitment to invest in the planet. The Patagonia Purpose Trust will have decision-making discretion over the company, including the power to elect board members. This will give the family some control of the direction of Patagonia.
The remaining 98% – common shares without voting weight – will go to the Holdfast Collective. All of Patagonia’s excess profit will fund the Holdfast Collective, which will donate to climate change causes. Specifically, they will donate to nature-based solutions, like preserving land. Excess profit includes all money not reinvested in the business for salaries or other expenses. The Holdfast Collective is a non-profit 501(c)4 organization. 501(c)4 organizations, like 501(c)3s, are non-profits, but they can make donations to political campaigns and are not tax-deductible. The Chouinard family will pay $17.5 million in taxes because of this restructuring.
Climate philanthropy, despite growing efforts, has been generally underwhelming. Of $64 billion U.S. grant makers disbursed in 2020, only $320 million directly went to climate change, less than one percent. Since then, in addition to the Chouinard family, major philanthropists have given large sums to the cause. Michael Bloomberg donated $500 million, Stewart and Lynda Resnick gave $750 million, Hansjörg Wyss donated $1 billion, Laurene Powell Jobs gave $3.5 billion, and Jeff Bezos donated $10 billion.
The climate challenge demands philanthropists’ attention. As the timeline to save the climate draws shorter, philanthropists need to rally funds to complement governmental and corporate action. The Center for Effective Philanthropy polled nonprofit administrators, finding that while 60% of them believe climate change to be “an extremely urgent problem,” just 4% believed philanthropy efforts to be effective.
To limit the pernicious effects of global warming, scientists believe the climate can warm no more than 1.5°C. This means greenhouse gas emissions must decline significantly by 2030 and become net-zero by 2050, which would require trillions of dollars of capital expenditure. That amount of money does not include addressing climate hazard infrastructure, with Hurricane Ian being the latest salient climate catastrophe. While countries have targeted rapid mitigation of greenhouse gas emission, few have set out detailed plans to make it happen. Philanthropists can step in there and help support actual decarbonization and adaptation to the effects of global warming. Philanthropists have distinct abilities to muster and deploy funds efficiently when the government or market fails. Their investments are far more risk-tolerant than their profit-oriented peers in the private market. They have several options for mobilizing more funding: deployment grants, submarket equity, loan guarantees, and patient venture capital. In essence, these strategies would foster more cross-sector collaboration. The Chouinard family giving away Patagonia is a start, but the cause demands far more nonprofit aid.
Environmentalism has reached a political boiling point. The Patagonia move comes at a time when 70% of people think corporations need to do more to address climate change. 61% believe Congress should do more to address global warming and 65% are worried about the crisis.
Since being elected, President Joe Biden and his administration have prioritized climate change policy. Biden rejoined the Paris Climate Accord and established the first National Climate Task Force, setting several climate-saving goals, such as being carbon net-neutral by 2050 and eliminating carbon-polluting electricity by 2035.
In August, Biden signed the Inflation Reduction Act, which included roughly $385 billion earmarked for tackling global warming. Democrats say the bill will reduce carbon emissions by around 40 percent by 2030 — not quite the National Climate Task Force’s goal of 52%. The funding covers clean energy tax credits, rebates for electric vehicles and at-home green energy use, cutting methane emissions and establishing green banks, which finance climate projects in the private market. Despite donor apathy, this bill is the largest climate investment ever. Along with Patagonia donating their company, the Inflation Reduction Act signals hope within the impending global alarm for climate change.