“The formal name for the concept he and Gore are advancing is sustainable capitalism, which sounds both more familiar and less hard-edged than what I understand to be the real underlying idea. The idea is that if some tenets of “long term” and “value based” investing are extended to include the environmental and social ramifications of corporate activity, the result can be better financial performance, rather than returns that are “nearly as good” or “worth it when you think of the social benefits.””
“The chain of logic behind this argument starts with the assumption that capitalism has shown its superiority to all other systems—as Gore put it to me, “it has proven to unlock a higher fraction of human potential” than any alternative system for making money—and markets are the most efficient way to allocate resources. But markets often overshoot, creating bubbles and busts like the destructive subprime real-estate disaster of the 2000s, and through its history the global capitalist system as a whole has periodically overshot, causing national or worldwide crises. The financial and industrial crises of the late 19th century led to reforms in the United States (and revolution in Russia) but were never fully resolved in Europe. The more profound crisis of the Great Depression led to the modern welfare state.”
“The capitalist crisis of our times, to follow this logic, shows up in the recurring booms and busts, the widening gaps between rich and poor, and the intensifying pressures on the natural environment. In many countries, including the United States, overall growth has stagnated through the past decade, and the median income has fallen even while total wealth has gone up.”
“The sustainable-capitalism concept includes a long-term outlook, a search for underlying value, and an attempt to resist distraction by market ephemera. But it adds the idea that the real, dollars-and-cents, balance-sheet value of a company is best assessed by including factors deliberately left out of many business measurements. Among them are a company’s environmental effects, the culture it creates internally, and its impact on the societies in which it operates.”
“The road map. The starting point for many of Generation’s investment decisions is a set of “road map” reports, on the long-term business, environmental, and social aspects of emerging technologies or markets.”
“The focus list. Based on the road maps, summits, and other sources of guidance, Generation’s analysts begin researching specific companies. They travel to the headquarters and interview managers and board members. They tour factories; they learn about competitors. They check sites like Glassdoor.com, where former employees discuss what they liked and didn’t like about a firm.”
“Active ownership. This is the third distinctive trait of the Generation approach. Mark Ferguson said that in a normal firm, 80 percent of the attention is on the buy decision and 20 percent on the sell, leaving zero percent for owning shares in a company. From Gore and Blood on down, everyone I spoke with at Generation said they viewed the attention scale entirely differently. Their real responsibilities began rather than ended when they bought shares of a firm.”
“Generation officials meet with board members and managers of companies they invest in, explaining exactly what they like about the business and what kinds of decisions they’re hoping to see. “We talk directly with them about compensation levels, about board structure, about sustainability practices they are considering,” Nogales said. “Typically board members and CEOs will tell us that we’re the first institutional investors ever to talk about these issues. You should not underestimate the influence this can have on CEOs. We are trying to give cover to people who want to do things in a different way.””
“Reinventing Capitalism? At Generation, I could tell that I had slightly hurt Mark Ferguson’s, Miguel Nogales’s, and David Blood’s feelings by not acting more awestruck at what I was seeing. To me, the analyst reports and discussions resembled good versions of what I’d seen and heard over the years from scientists discussing opportunities and obstacles in a field they knew well, or entrepreneurs weighing prospects for a new business. The Generation officials emphasized that if I had spent more of my life in the financial world, I would understand how profoundly their deliberative process varied from the investment-house norm. In particular, it was not based on a star system, in which leading analysts cultivate their contacts and play their hunches. Nor did it involve the normal sort of quantitative analyses of general market trends.”