Philanthropic pursuits with Alan Schwartz AO

Friday, 01 December 2023


    Large family offices should sort capital into three unapologetically defined pools: Commercial, impact & philanthropic, says Alan Schwartz AO. 

    Alan Schwartz AO was only seven years old when he first heard the phrase “Why is it so?” from the lips of American physicist Professor Julius Sumner Miller. He remembers watching an episode of the 1960s ABC science program where the professor used a bowl of water, a candle and a drinking glass to illustrate the “Greenhouse Effect” — today well known as the way in which heat is trapped close to the Earth’s surface by greenhouse gases, leading to global warming and climate change.

    “When I saw that experiment, I became worried about what we were doing to the planet,” he says.

    The fear was intensified when Schwartz accompanied his parents each week as they delivered eggs from the family’s farm at Nar Nar Goon, south-east of Melbourne, to sell at the city markets. “I could feel the city air and I remember it upset me that it was so polluted. I thought the professor was right — we are running out of oxygen.”

    Those experiences were formative in shaping Schwartz’s passion for conservation and his advocacy for a more engaged and ethical civil society. An economist and lawyer by background, Schwartz has created, acquired and sold a number of successful businesses. The most significant was a legal software and publishing group called Anstat, which was sold to SAI Global for $50m in 2005.

    Trawalla Group, the family office he runs with his wife, Reserve Bank of Australia board member Carol Schwartz AO FAICD, is investing its wealth to accelerate Australia’s capacity to respond rapidly to climate change. Its climate strategy includes $100m for commercial investment, $55m of which is already assigned to climate investment group Wollemi Capital and rooftop solar developer Allume Energy.

    Commercial imperative

    “This allocation of family capital is purely commercial,” says Schwartz. “There are plenty of commercial opportunities in the marketplace. In doing this, we have made a completely commercial judgement. We see a lot of really good, proven technologies that simply require financing.

    “For Wollemi, which is investing in carbon solutions, it is not cheap finance, but it is cheaper than raising equity capital. Many climate solution technology projects are also capital- intensive and what is lacking is project finance for them. The banks are not ready — they will come in down the track. The venture funds are also not interested. Private sector funding has gaps that we hope to fill.”

    While he acknowledges there are no guarantees the investments will be profitable, he argues the private sector must partner more effectively with civil society to change the “rules” of the game that constrain profitable climate investing. “We are actively looking for further opportunities. Their range and scope is enormous — from food and agriculture to energy transition and climate services.”

    Trawalla has been innovative in that it has linked its commercial activities in this space to the work of its philanthropic arm, known as the Trawalla Foundation, a fund that invests in the arts, ideas and innovation. The Trawalla Foundation has invested philanthropically over the years, supporting environmental organisations and causes, and will invest a further $2.5m over the next five years.

    He argues that philanthropy and commercial investing are bookends, with zero return of capital at one end, full commercial returns at the other and impact investing in the middle. “There is still a divide in family offices between the commercial and philanthropic. Still too few connect their philanthropy to commercial opportunities.

    “I want to see large family offices organise their capital into three pools,” he adds. “The largest will be commercial, which is unapologetically seeking commercial, risk-adjusted returns. Then there is a second pool, impact capital, which accepts less than full commercial returns. The third is philanthropic, where the only return you get is social and environmental.

    “By creating three buckets of capital — philanthropy, impact and commercial investment — and by allowing each bucket to pursue its clearly defined purpose, we hope to contribute to the climate transition without compromising our economic returns.”

    Trawalla hopes to launch its first impact investment in climate — a so-called Transition Accelerator, dedicated to scaling commercial climate solutions to expand the scope for profitable climate investing — in 2023. Schwartz has been working with RMIT Activator Capital Fund board member Monique Andrew, who is preparing a plan for the project that builds on Schwartz’s 2017 Universal Commons Project to reform political and economic institutions to better align profit and value “so business and capitalism serves the common good”.

    He hopes the accelerator, partially funded by an interest-free impact loan from Trawalla, will help unleash a $30 trillion investment opportunity and speed the economic transition to net zero. “We are funding the Transition Accelerator to push for changes to attract even more private capital into the transition. A huge piece of work needs to get done to help business invest in this space.”

    Peak philanthropy

    Schwartz’s first exposure to philanthropy was as a volunteer in the early 1990s, teaching Jewish Russian immigrants in Melbourne how to speak English. As his philanthropy matured, he sought to better understand its role and responsibility in society. This led him to Philanthropy Australia (PA), the nation’s peak philanthropic group, which he chaired for five years from 2014–19.

    There, he discovered that philanthropy constituted less than two per cent of the funds that were available to solve the nation’s most pressing social and environmental problems. Most funding comes from government in the form of pensions, unemployment benefits, public school funding and other grants, while the government also uses its regulatory and taxing powers to achieve social and environmental objectives.

    “During my years as chair of PA, I urged philanthropists to maximise the leverage and impact of their philanthropy by allocating a significant proportion of their granting dollars towards influencing government expenditure,” says Schwartz. “A philanthropic dollar spent encouraging government to provide more support for important social and environmental programs was, in terms of impact, likely to be worth more than a dollar of direct philanthropic support to worthy causes. We even created a membership category of giving called ‘Philanthropy Champions’ — the money that was given for that was directed specifically at the policy advocacy work of PA.”

    Schwartz believes philanthropy has played a critical role in funding environmental activists, like the class action lawsuit on behalf of peoples from the remote islands of Boigu and Saibai in the Torres Strait (Pabai Pabai & Anor v Commonwealth of Australia (2021) VID 622). The applicants submitted that the “Commonwealth owes a duty of care to Torres Strait Islanders to take reasonable steps to protect them from the harms caused by climate change” and it had failed in that duty. Schwartz argues cases like these, which he refers to as “the climate wars”, have led to net zero commitments from governments and corporations.

    “These and other commitments and regulatory changes, plus changing community attitudes, have created a market for carbon reduction products and services, and is drawing private capital into the work of decarbonising industry and society,” says Schwartz.

    However, he knows the current regulatory framework won’t support anything close to the level of investment needed to address the nation’s social and environmental issues. “The challenge is enormous and there is a real risk we will not do enough,” he says. “In order to hold government and business accountable for their commitments, we will sustain our philanthropic giving. To enable even more commercial investment by us and others, our philanthropy will also support NGOs advocating even greater policy and financial support from government.”

    Over the years, Schwartz has learned his strongest quality in business, philanthropy and life is conscientiousness. But now, especially on climate change, he feels a moral responsibility to do what he can to improve the world for future generations. “My commitment to philanthropy has been driven by my desire to do the right thing,” he says. “Contributing philanthropically to help solve our most pressing social and environmental problems is the right thing to do.” 

    This article first appeared under the headline 'The Conscientious Investor’ in the December 2023 / January 2024 issue of Company Director magazine.  

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