Atlantic editor James Fallows recently interviewed Al Gore about his decade-long project to test his ideas about green investing. Fallows calls it “an audacious attempt to show that a ‘sustainably’ minded investment strategy could make more money than one simply focused on profit-maximization.” Gore might have been tempted to call the project yet more inconvenient truths, as a warning to traditional financial professionals. But in the ways it addresses the habitable future of the planet, his new model for investing might better be termed a set of very convenient truths.
Gore and his partner David Blood started their project ten years ago when they founded Generation Investment Management, now a $12-billion investment company that Fallows describes as “a demonstration of a new version of capitalism, one that will shift the incentives of financial and business operations to reduce the environmental, social, political, and long-term economic damage being caused by unsustainable commercial excesses.”
Green investing works
And the demonstration seems to be working. Since its founding, Generation has made more money by being environmentally conscious than have most funds that were guided solely by profit-seeking, without regard to environmental or social consequences. Dominic Barton, the global head of McKinsey, describes Generation:
They are indeed unusual, in applying such a comprehensive sustainability perspective. They have created a real demonstration vehicle for the idea that if you are broad-minded and care about externalities, you can actually add shareholder value. Many people have talked about this, but now they have done it.
In 2013, Generation published a report describing how coal and oil reserves were likely to become stranded assets, unable to be sold or burned. And therefore the book value of these reserves could never be realized. First overvalued coal companies would decline and in many cases go bankrupt, said the report, and later oil companies. As a result, Gore called for fossil fuel divestment:
But I say that not just because it’s the ‘right’ thing to do but because it is the economically smart thing to do. Oil companies have assets on the books worth $21 trillion, but that’s based on the fiction that all that carbon is going to be burned.
Ethics is a plus
Fallows describes earlier divestment movements, drawing a distinction from Generation’s new approach:
The current ethical-investment movement dates to the 1960s, when students pressured their universities to rid endowments of holdings in defense contractors or big polluters. The most famous political success of what is called a “negative screen” approach—ruling out certain categories of investment—was the anti-apartheid boycott of South African products and businesses in the 1980s and early 1990s. But all of these methods viewed “ethics” as a minus, the unavoidable cost of doing the right thing. The people at Generation, of course, contend that the “holistic” and “sustainable” view is a business plus, in the service of long-term greed [seen as a positive motivator].
Fallows describes many more details about Gore and Blood’s experiment, their approach, and their rationale. You can find his article in the November issue of the Atlantic, and online here. (Fallows has also posted some additional notes.)
The CalSTRS and CalPERS boards are aware, no doubt, of Generation’s successes. They include climate change as a stated investment risk for their funds, and it seems likely they are already employing many of the same approaches Gore advocates. Let’s hope that includes speedy divestment from all fossil fuels. It’s the right thing to do, and it’s a good way to make money, too—which happens to be a very convenient truth for everyone.
UPDATE, 10/16: I was reminded that Gore and Blood were invited to speak to the CalSTRS Investment Committee in February, and they passed along many of their ideas then. It’s heartening to realize how attuned CalSTRS is to these progressive ideas about investment. Here’s a video of that discussion.
Here’s what Gore had to say about shareholder engagement, the anti-divestment stance that CalPERS and CalSTRS often take:
In my experience,… I have been less than impressed with the willingness of carbon-intensive companies to play a meaningful role in bringing about change…. Some talk a very good game. Some of them make some interesting moves, and then abandon them.