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November 09, 2004
Al Gore and David Blood Graft Sustainability Research into Traditional Investing Analysis
    by William Baue

The former US vice president and the former Goldman Sachs CEO launch a new investment firm whose research team fully integrates sustainability with fundamentals.


Sustainable and responsible investing (SRI), also known as socially responsible investing, has increasingly been gaining a toehold in the mainstream since the Institutional Investor Summit on Climate Risk at the United Nations co-chaired by former US Vice President Al Gore last year. Yesterday, Mr. Gore helped move sustainability investing a significant step forward, placing its feet firmly in the mainstream by launching Generation Investment Management, a firm that will fully integrate sustainability research into its fundamental equity analysis.

"Transparency, innovation, eco-efficiency, investing in the community, nurturing and motivating employees, managing long-term risks, and embracing long-term opportunities are integral parts of a company's enduring capability to create value," said Mr. Gore, who chairs Generation. "Business leaders who align their business strategy and technical development with sustainability and social accountability will deliver superior long-term results to shareholders."

While Generation bridges the Atlantic with offices in London and Washington, DC, its founders also bridge the worlds of sustainability and traditional investment. Mr. Gore championed environmental and social sustainability throughout the 1990s in the Clinton Administration; managing director David Blood brings to the table significant experience in traditional investing as former CEO of Goldman Sachs Asset Management.

"Combining fundamental equity analysis and sustainability research at the beginning, middle and end of the investment process is just a more sensible way to invest and deliver superior returns to our clients," said Mr. Blood. "Sustainability combines the principles of economic growth, environmental stewardship, and social accountability."

Generation's founders have contributed a total of "double-digit" millions of dollars to the startup according to the Financial Times. In addition to Messrs. Gore and Blood, the founders include former Goldman Sachs executives Mark Ferguson and Peter Harris as well as Colin le Duc, former director of research for Sustainable Asset Management (SAM), a Zurich-based sustainability investment firm.

"One of the fundamental premises of our approach is that there is no difference between fundamental equity research and sustainability research," said Mr. le Duc, who serves as Generation's head of research. "The lessons I learned at SAM and the lessons my colleagues learned at Goldman Sachs taught us that the next evolution in long-term, sustainable investing was to fully integrate the team."

Mr. le Duc explains how his 13-person research team, which also includes sustainability researchers Duncan Austin from the World Resources Institute (WRI) and Niki Rosinski from SAM, is advancing the next-generation evolution of sustainability investing.

"The first generation of SRI was negative screening, the second was best-in-class; in each of those cases, you had an SRI research group that would produce a list of companies that would then be handed to the investment management team," Mr. le Duc told SocialFunds.com.

Negative screening excludes "sin" sectors such as tobacco, while best-in-class screening rewards corporate social responsibility (CSR) best performers in "dirty" sectors such as the extractive industries.

"What differentiates us is that we are doing equity research that includes sustainability research--all considerations are integrated together," Mr. le Duc added.
"Furthermore, we're doing primary research exclusively--that means we will not buy in any research at all."

Most SRI firms purchase CSR data from research firms such as Innovest Strategic Value Advisors, KLD Research & Analytics, or Ethical Investment Research Services (EIRiS).

Mr. le Duc illustrates how Generation's research differs from both traditional and SRI approaches by describing examples.

"When we assess management quality at every company, we will ask very traditional questions about the company's strategy and the quality of the management, but the sustainability aspects are embedded within that definition of quality," he said. "For instance, we would rate Toyota's [ticker: TM] strategy as being absolutely of high quality with regards to traditional aspects as well as sustainability aspects, but we're not making a distinction between them."

Generation aims to begin its investment management business in early 2005, catering to institutional investors such as pension funds, foundations, and endowments as well as high net worth individuals. It will invest in global equities, an underdeveloped asset class in SRI.

"The trends we saw at SAM and the trends my colleagues saw at Goldman Sachs were all pointing in this direction, so if in a few years the mainstream is adopting this approach, that would be a great thing," Mr. le Duc concluded.

 

 
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