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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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.

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.  

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.  

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.

Following my article on the implications of the so-far-very-profitable “sustainable capitalism” approach of Al Gore’s Generation Investment firm in London, and the previous call-and-response you’ll see further down on this page, some more reader response.

First, from a veteran of the U.S. high tech industry who is now a professor in Israel:

Like Felix Salmon, I have an active BS detector that begins to buzz when the success of what is essentially a technical advance (usually something that I encounter in a popular treatment of an engineering breakthrough, like recent stories on i-phone sized cameras with 16 different lenses and imaging chips) is defended by one number and a lot of good intentions. 

The Institutional Investor article which you link to leaves me feeling much better about the likelihood that Generation is really doing well for fundamentally sound reasons, and will have a broader impact.  It does make the case that others are following similar directions.   

Report from Generation Foundation on “sustainable capitalism”

The new issue has my piece on the Generation Investment Management firm co-founded more than a decade ago by Al Gore, and why Gore thinks its profitable track record can shift capitalist incentives in a pro-environmental direction. I hope you’ll read it, because I think the arguments Gore and colleagues are making bear directly on the “saving capitalism from itself” debate that has been running for years in Europe and which the Democratic candidates waded into during this week’s debate.

Yesterday I posted a long, largely skeptical response by the financial writer Felix Salmon, of Fusion. You’ll see it lower down on this page. Salmon had once looked into Generation himself, and he had questions about both the details of its operation and the significance of its example.

My purpose in this story is different from that of some others I’ve written. For instance, in the big Chickenhawk Nation piece I did in January, the narrative structure boiled down to: I’ve been wrestling with this topic for years, I’ve been reporting on it in recently, and now I have a line of argument. So sit back and let me see if I can convince you. Some other long stories, on fields I’ve dealt with for decades, follow that same structure (for instance this and this and this and this or this.)

Many other stories are in more straightforwardly reportorial mode. (The Atlantic is one of a handful of publications comfortable with both.)

The new issue (subscribe!) has my article on Generation Investment Management, the London-based financial firm Al Gore co-founded more than a decade ago. Generation has been very profitable, and Gore and his colleagues contend that its success should draw attention toward the rewards of environmentally conscious “sustainable capitalism.”

From the current issue

Felix Salmon, the prominent financial writer and senior editor for Fusion, has some thoughts about this piece, what Al Gore and his colleagues are up to, and what it all does or does not mean. As will become obvious, there are parts of Salmon’s letter I like and agree with more than other parts, and I think that many of his complaints boil down to this not being a different kind of article for a different kind of readership in a different, more financial-insidery kind of newspaper or magazine. Or by a different writer! Some other parts, I think, are versions of the “$20 bill on the sidewalk” outlook I mention in the article: the Gore/Generation practices can’t really be that successful, because if they were everyone would already have adopted them. (“That can’t be a $20 bill on the sidewalk, because if it were someone would already have picked it up.”)

But there are also some good fundamental questions he asks about the implications of this model, which I’m resisting answer piecemeal and will begin responding to tomorrow. For now, I’m grateful to Salmon for letting me quote it in full and kick off the discussion.

Felix Salmon writes:

This is a fascinating and yet frustrating article, at least for me. It’s by far the most in-depth thing that has ever been written about Generation, but I feel like it doesn’t really answer any of the questions I had about the company, most of which arose when I wrote this piece about why more investors don’t divest from fossil fuels. The Generation view would have involved me putting something in there about how solar is a much better investment than coal, or some such, but because Generation is so secretive about its results, I couldn’t really do that.

So anyway, here are my questions:

From our new issue: Al Gore and David Blood, two of the founders of Generation Investment Management, who believe that their firm can help engineer a paradigm shift in modern capitalism. Don’t laugh. (Photo for the Atlantic by Christopher Griffin)

Two weeks ago, I mentioned that I was interviewing Al Gore about a decade-long project he had undertaken that had largely escaped public notice.

My article about that project, an audacious attempt to show that a “sustainably” minded investment strategy could make more money than one simply focused on profit-maximization whatever the side effects, is now coming out in our November issue and has just gone online. You can read it here: “The Planet-Saving, Capitalism-Subverting, Surprisingly Lucrative Investment Secrets of Al Gore.” (Of course, Subscribe!)

In every issue and most every article, we try to tell you about ideas and developments you might not have come across before. As a reporter, I like the job best, and feel most alive, when being exposed to some new-to-me culture or organization or approach to life. A Chinese factory, a software startup, a genomics-research lab, an aerospace design center, a Border Patrol unit—these are the sorts of places that I’ve had the luck to spend time inside, begin learning about, and try to describe in the magazine. The structure of a great many of our Atlantic stories, and nearly all of mine, then boils down to: “Here’s a question I had, here’s how I looked for answers, and here’s what I found.” That’s what I’ve done in this case, and I think the results contain genuine news.