Al Gore, Felix Salmon, ‘Sustainability,’ and Aspiration

Editor’s Note: This article previously appeared in a different format as part of The Atlantic’s Notes section, retired in 2021.
A Generation Foundation report on why sustainable businesses should also be more profitable than others

On the eve of the Paris climate talks, let’s get back to “sustainable capitalism.”

After my piece about Al Gore’s sustainability-minded, and so-far very profitable, Generation Investment firm came out last month, Felix Salmon of Fusion wrote an email on all the reasons he was skeptical of the company, its claims, its founders, the story, and everything else. You can see it at the bottom of this Thread, or here.

Salmon now offers what he calls the “considered” version of his critique, as a new post on Fusion. As with his email, I’m glad Salmon is directing attention to Generation, even though as with his email obviously there is a lot I disagree with in his arguments and dislike about his tone. (The Fusion version begins, “Al Gore has become a salesman.”) But by all means read this latest installment and judge for yourself.


Before getting to an important point on which I actually agree with Salmon, let me address one of his continuing “something seems fishy here” themes. It concerns whether Generation is somehow cooking the books in reporting its very high returns, which have averaged more than 12% per year through the booms and crashes of the past decade.

In his original email, Salmon wondered if Generation had been cheating by choosing a benchmark index only at the end of a decade, when it could pick the one that made its returns look best. As I pointed out here, that’s not so; they’ve used the same one throughout.

Now Salmon wonders whether Generation’s very attractive long-term results mask some shorter-term fluctuations. “What we don’t know, however, is how much the fund returned over other time periods: are they only going public with this figure now because they’ve finally arrived at a number which looks good?”

As a conceptual matter, this is a very strange complaint to make about a firm whose announced goal is to look past short-term fluctuations to maximize longer-term results. (“Coach, we know you were ahead when the game ended. But you were behind in the second quarter!”) It also has no factual foundation:

Eight years ago, Lenny Mendonca of the McKinsey Global Institute interviewed Gore and his Generation partner David Blood about their then-nascent approach. What they told him in 2007, just before the world financial crash, is very consistent with what they told me 2015, after the crash and recovery. By 2009, when the crash was upending investment models around the world, Gore was already considering telling the story of Generation’s better-than-normal returns. I know this first-hand because he spoke with me about it at that time. In the end he and his partners decided to wait until they had a ten-year record to discuss.

Felix Salmon also wonders whether Generation’s higher returns are eaten up in higher fees. I don’t know the exact fee level, which is confidential. But I have no reason to disbelieve Generation’s claims that the fees are “normal” for their manager class. I have “no reason to disbelieve” this because the many Generation claims I could check independently all stood up. I have subsequently spoken to some of their individual and institutional investors, who said that the fees were “normal.” To close the loop here, Salmon has no grounds for speculating that the fees are unusually high, and I have reason to believe they are not.

Now, where we agree.


Salmon closes his new column saying that the most interesting question raised by Generation is whether, in principle, more “sustainable” business practices should also prove more profitable in the long term. That’s exactly the question Al Gore and David Blood are hoping to raise; it was what Lenny Mendonca wrote about; it is the subject on the ongoing reports from Generation’s advocacy arm, the Generation Foundation; and it’s the theme of the many other analyses I mention here.

It’s also the idea behind an organization called Aspiration, which is meant to be “an investment firm with a conscience” for members of the middle class. This month it announced a new Redwood Fund, which offers sustainable-capitalism investment options for low fees, and for minimum investments of as little as $500. (Generation’s funds, as a comparison, are mainly for pension managers or other institutional investors, or for wealthy individuals who can put up a minimum of $3 million.) You can read more about Aspiration here and about the Redwood Fund here. Andrei Cherny, Aspiration’s founder and CEO, said about the fund in an email:

The Aspiration Redwood Fund has a minimum investment of $500 in companies whose sustainable environmental and employee policies make them likely to be more profitable. This is the first fund built in parallel to the new Sustainable Accounting Standards Board (SASB) metrics.

This will open up the Generation model -- investing in companies whose sustainable ESG practices make them more valuable -- to the retail marketplace for a $500 minimum investment. This is a product being run for us by UBS based on a strategy previously only available to their private wealth clients that has beat the S&P 500 each of the past 6 years by 3.5%.

While sustainable investing is growing fast in funds like Gore's, it has, until now, been mostly available only to the very wealthy and what’s been available to everyday investors has often meant sacrificing returns.  

Felix Salmon says that this fund looks worth checking out, and I agree. And on what financial innovators at groups as new as Aspiration, as relatively small as Generation, or as established and enormous as BlackRock, may be trying to do, again this point from the original article:

No single small company is going to change finance by itself, and Generation’s past results are no guarantee of its future. But previous examples of market success—Peter Lynch of Fidelity in the early mutual-fund days, Warren Buffett of Berkshire Hathaway with his emphasis on the long term, David Swensen of Yale with his returns from unconventional investments, John Bogle of Vanguard with his advocacy of low-cost indexing—have shifted behavior. Generation’s goal is to present an example of a less environmentally and socially destructive path toward high returns.