Reporter's Notebook

Al Gore's Plan to Save Capitalism: Does It Make Sense?
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Below are Atlantic notes, from James Fallows and others, in response to his November, 2015 article on Al Gore’s campaign to make capitalism more sustainable—and profitable.
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Did Al Gore 'Invent' Sustainable Capitalism?

An “it’s about time!” welcome to Al Gore and David Blood, on the Resilient Investor site.

In early responses to my article in the current issue about the surprisingly profitable track record of Al Gore’s Generation Investment Management firm, Felix Salmon and other commentators have given variants of what I’m calling the “$20 bill on the sidewalk” argument. The $20 argument goes: if an economics professor sees some money on the sidewalk, he thinks, That can’t really be a $20 bill, because if it were someone would already have picked it up. The analogue when viewing sustainable investment would be, This approach can’t really be so profitable, because if it were other people would already be doing it.

For this installment, a sample of responses that say: As a matter of fact, it is that profitable! And lots of other people have been doing it. And, even if Al Gore and David Blood didn’t “invent” this approach, perhaps their prominence and their recent success will help it become better known.

First and most extensive is a long report by Jim Cummings at the Resilient Investor site, which essentially says: Welcome aboard, Mr. Gore! And it’s about time! It’s worth reading in detail, but here is a sample:

Convincing quotes from [various experts I cite in the article] all seem to agree [that Generation’s profitability] flies in the face of conventional wisdom.  Where have they been?  

When we wrote Investing With Your Values in 1999 (published by Bloomberg, not exactly a fringe outfit), there was already a solid track record of clear parity and frequently out-performance by SRI funds; our own Jack Brill had completed a 5-year New York Times mock-management quarterly feature, running a strong second with the only SRI portfolio.  Indeed, the co-authors of our new book were in the audience at the annual SRI Conference in 2005 when David Blood, who had recently launched Generation Investment Management with Gore, told the gathered crowd, “You were right. You’ve been right for 25 years. Incorporating social, environmental, and corporate governance considerations into the stock selection process adds value.”  

We were happy to welcome Blood to the club in 2005, and we’re surely excited that Generation’s first ten years of results can be added to the steady stream of mainstream reports confirming and expanding on the message that socially and environmentally responsible firms outperform their values-neutral peers.

If you’re joining us late: my article in the current issue, about the Generation Investment Management firm of London, explained its potential as a test case for the “sustainability can be profitable!” hypothesis.

Over the past ten economically tumultuous years, the returns of this environmentally and social minded firm have beaten nearly all other investors. Thus Al Gore, Generation’s chairman, and his colleagues say that financial managers should give sustainability another look.

The counter-argument is: this can’t be right. If sustainability really were so lucrative, more people would be doing it already.

In counter to that, Gore et al say: in fact, more firms are taking this approach, and it is paying off. One recent indication, which I mentioned in my article, is the report from Oxford University and Arabesque partners about the growing popularity and profitability of a longer-term, socially minded investment strategy.

Here’s another: a new study from the Wharton School at Penn, with its Social Impact Initiative.  

The leitmotif of the pieces you see collected in this Thread, based on my article in the current issue about the Generation Investment Management firm of London, is whether “sustainable” investing can actually pay off. Al Gore and his colleagues say: Yes! Look at our returns. Skeptics say: something must be fishy here.

Company logo for Opower

For this installment, we’ll hear from a company that Generation decided to take a large position in, after the elaborate decision-making process I described in the article. This note comes from Alex Laskey, president and co-founder of a software-as-service company called Opower.

As I mentioned in the article, when I got a look at Generation’s holdings list, a few of the names were familiar—Microsoft, Qualcomm, Unilever—but many were of companies I’d never heard of before. Opower was one of these. I hadn’t been aware of it but now know that it is a cloud-based service that is designed to increase efficiency in the utility business. Laskey recently told Harvard magazine: “Last year alone we saved close to three terawatt hours. Just to compare, the Hoover Dam—one of the country’s largest hydroelectric power sources—produces 3.9 terawatt hours a year.”

I didn’t ask questions about Opower when I was speaking with Generation officials in London. Since then I have learned that Opower had been on the Generation “Focus List” for a while, but seemed too expensive. When its stock price took a dive early this year, Generation bought heavily and now holds a major position.

Here is what Alex Laskey says about the experience. To be clear, I’m quoting this not to tout/endorse his company but to give a specific and interesting real-world example of how the “sustainable” investment process looks on the receiving end. Laskey writes:

It isn't yet clear to me how Generation distinguishes itself as an owner of our shares. However the thoughtful and patient way in which they approached an investment in Opower indicates they're a different kind of investor and holder.

Though Generation has been an investor in Opower for less than a year (they first invested in March of 2015), I have known [some people] there for more than four years. I first met them at a meeting with Al Gore and the CEOs/Presidents of several clean energy companies in London in October of 2011. This was one of the "solution summits" you describe in the article.  

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.