Al Gore didn’t start out as the founder of Generation Investment Management.
After his political career ended, the former Vice President became involved with technology. Gore has worked with Google and been a member of the Apple board.
He also co-founded Current TV, which he and his partner sold to Al Jazeera for a few hundred million in 2013.
Gore is a writer too.
He wrote the international bestselling book An Inconvenient Truth, amongst others.
He is also heavily involved in environmental causes. He founded the Climate Reality Project to advocate for and educate people about climate change. In fact, Gore was co-winner of the 2017 Nobel Peace Prize for his efforts on climate change.
According to the Atlantic, Gore spends roughly half of his time with Climate Reality and the rest is spent on a very different effort – Generation Investment Management.
What is Generation Investment Management?
Generation Investment Management is not your average investment firm.
This undertaking is not dedicated to making money alone. It is environmentally conscious and focused on sustainable investing.
Gore founded the venture with the former head of asset management at Goldman Sachs, David Blood, and five other partners in 2004.
“Our objective is to try to help make the business case for sustainable investing,” says Blood, and so far, the pair have been successful. Generation Investment Management brought in 12.14% per year in its first ten years of operations, despite the recession.
“This has been one of the most interesting and intellectually challenging journeys of my life,” says Gore. “If you do this the right way, you don’t have to trade values for value. Indeed, with some good fortune and skill, you can get enhanced returns.”
How Al Gore Turned Sustainable Investing into a Billion Dollar Opportunity
Generation Investment Management currently has roughly $18.5 billion in assets under management.
In selecting its investments, the firm looks at the quality of each business as well as the Environmental, Social, and Governance (ESG) factors at play.
This information doesn’t just give Generation Investment Management insight into HOW and WHY the company performs the way it does.
Companies with both strong ESG and solid operations tend to perform well.
This focus also furthers Gore’s climate change agenda by demonstrating quantitively that companies are more successful when they adopt practices that reduce their environmental impacts as well as any social damage from the WAY they operate.
In other words, companies make more money when they have strong ESG – and so do the people who invest in those organizations.
How does Generation Investment Management Invest?
Generation Investment Management has a multi-tiered strategy to investment.
The firm starts by looking at the big picture. It examines industries and regions to look at the factors that are going to impact the profitability of companies in those sectors or locations over the coming years.
This includes more traditional drivers like changes in consumer preferences and market share as well as the challenges these companies will face with regard to sustainability.
Some of this research is conducted in-house, but the firm also hosts summit-style gatherings to encourage debate and discussion with various subject matter experts.
This research forms roadmaps that help lead the firm to its best investments.
Next, Generation Investment Management looks at QUALITY companies it believes are best positioned to compete in the atmospheres that it forecasts.
“The search for quality is at the core of our investment analysis and diligence,” explains the firm. “We integrate fundamental analysis and sustainability factors to better assess the quality of the businesses and management teams. We believe our investment process leads to differentiated conclusions on the quality and long-term performance of the companies and management teams we invest in.”
From there, where the firm invests depends on the specific fund in question.
Generation Investment Management has global equity funds which are designed to have a high margin of safety. The fund also offers Asia Equity funds and Growth Equity funds, which are more aggressive.
The latter focuses on growing businesses that are sustainably producing goods and services that are innovative and potentially revolutionary in creating a more sustainable economy.
What does Generation Investment Management Invest in?
This firm’s investment process is concentrated on the long-term performance of its holdings, but it also looks at the sustainability of its investments.
Generation Investment Management defines a sustainable company as one that meets the following criteria:
1. It sells goods or services that support a healthy and safe environment. Equitable practices and a low-carbon footprint are a must.
2. It has defined sustainability practices in place that drive its profitability and improve its competitive positioning. Sustainable practices need to be built into the fiber of every holding in Generation Investment Management’s portfolio.
3. It doesn’t rob its future earnings to boost its current earnings. Sustainability isn’t just about the environment. The company needs to practice economic sustainability to be a candidate for investment.
In a nutshell, Generation Investment Management uses Buffett-style investing with a sustainability overlay. It has a buy-and-hold strategy with strong ESG.
Generation Investment Management Returns
Generation Investment Management’s Global Equity Fund has been a consistent top performer since its inception.
Its annualized returns have consistently been 5% or more over the average of 1,400 other global equity strategies according to Evestment.
Al Gore might say that these numbers are evidence of the value of sustainable investing. For instance, Generation Investment Management divested its position in BP [NYSE: BP] after safety issues were discovered in 2010.
In turn, the firm’s funds were not invested in BP [NYSE: BP] when the Horizon disaster claimed lives and cost investors billions of dollars.
Generation Investment Management benefits because of the moves Gore and his team make because of their environmentally-conscious focus.