Imagine what sustainable finance would look like without NGOs. No Carbon Tracker. No Climate Bonds Initiative. No ShareAction. No InfluenceMap. No AFII. No Theia Finance Labs. Portfolio alignment, stranded assets, transition forecasting: it was NGOs that either conceived or mainstreamed these and many other ideas. NGOs have transformed the sustainable finance world.
You know who else transformed the world? Nokia.
The Nokia comparison may seem absurd. But there is a striking similarity. Both Nokia and NGOs helped create a new market. And like Nokia, NGOs too now face the risk of becoming a stranded asset.
We are of course familiar with the signs.
It starts with losing market share. When NGOs like mine started building data and analysis solutions 10-plus years ago, climate data was still in the Stone Age (no offence!). Alignment metrics: didn’t exist. Asset-level data: what now? Forward-looking data: good luck! Today, these features are standard fare in commercial offering. Whether it’s data or research, the NGO success has created commercial competitors that are often better resourced and more attuned to market dynamics.
The second challenge is the business model. The golden years have created a ton of NGO activities and assets, and a problem: how to fund the assets that have been created? Should they be commercialised, like the SME climate software tilt? Or should they remain a public good, like RMI PACTA?
“Nothing costs enough here” is the lament of John the Savage in Huxley’s Brave New World, as it should be ours.
By developing public goods, NGOs are setting themselves up for a business model trap, at the permanent mercy of funders pivoting to a “shiny new toy” even if the demand for the asset is still there. And even where philanthropy holds the line, the scale of some of this work requires a business model that even the best-intentioned (and deep-pocketed) funders can’t lift.
Most industries face a moment like this at some point. This isn’t the NGO’s fault, unless you want to blame them for their success. However, NGOs are facing this moment in a particularly vulnerable state.
Once upon a time, a venerable publication like Responsible Investor could be counted upon to publish most NGO research (thank you!). The bar is now (happily!) higher, given the sheer volume of news.
Some NGOs seem to think the only way to counter this trend is to trade credibility for visibility. Last year, an NGO claimed that a fossil fuel crash would require a higher bailout than the Global Financial Crisis. The report, among other sins, assessed banks’ subprime exposure without considering derivatives. Recently, another NGO changed its accounting approach to hide decline in its outreach numbers.
NGOs also struggle with a persistent brain drain. Again, a sign of impact as NGO skills and experiences are transferred to transform business! But clearly a challenge for remaining one step ahead.
And finally, there is a clear lack of willingness across NGOs to admit mistakes. I wasted a ton of philanthropic and public capital on “cool ideas” without creating the management infrastructure to make them happen. Did I talk about these failures? No.
I nearly suffered from burnout when my organisation faced an existential governance crisis. Did I share the lessons? No. I was too ashamed. Meanwhile, SBTi throws the entire offset/target-setting industry into disarray and the best we get is a “clarification statement”.
It’s probably time to point out that, unlike for Nokia, “stranded assets” might be a good thing for NGOs. After all, our mission is to become redundant.
Ultimately, the more fundamental problem then is not that assets are stranding, but that we don’t appreciate that NGOs have assets that can become “stranded” to begin with. That means when funding runs out, it doesn’t just risk killing the project. It also risks killing the asset.
Happily, NGOs have developed solutions: transition plans! Managed phaseouts! Now we just have to apply them ourselves.
That starts with funders appreciating the assets they are seeding. One funder recently informed us just weeks before funding ran out that they would not continue funding, leaving a research project with a central bank “stranded”.
Of course, funders shouldn’t fund things they don’t prioritise anymore. But our project was an asset, a relationship with a central bank. A managed phaseout of funding could have avoided the complications that ensued.
It’s easy (albeit not strategic) to pick on funders. But this really starts with the NGOs. We are too afraid to confront our “zombie, past their sell-by-date” assets.
There is a significant part of our work that is ready for a commercial business model. Meanwhile, other parts of our work may have been impactful in 2014, but not in 2024. And some require meaningful long-term funding commitment beyond annual funding cycles in order to be viable. If that doesn’t exist, maybe the idea isn’t viable neither.
The reason that I am writing this column is not blame NGOs or funders, but to flag the need for a change in mindset. Specifically:
1. Have a transition plan for your activities and assets, be clear with your funders about it, and prepare the groundwork to make it happen, understanding that maintaining market share for the sake of market share is a violation of your mission.
2. Adapt. Innovate. The lesson from Nokia is that just because you create the market, doesn’t mean you can stop innovating and ignoring new trends (hi smartphone!). You may not be able to compete on salary. But commercial companies will never be able to compete with the freedom to think and to take risks that defines the best of non-profit work and ultimately creates impact. Moving on from zombie assets gives the intellectual space for new ideas, the next “stranded assets” narrative.
3. Foster accountability. Admit mistakes and failures, be honest about dead ends, and learn from these experiences.
All of this will be uncomfortable. “We prefer to do things comfortably,” says the Controller in Brave New World.
“I don’t want comfort,” is the response of John the Savage. “I want God, I want poetry, I want real danger, I want freedom, I want goodness. I want sin.”
Don’t want to become a stranded asset? Welcome poetry and danger!
