Climate Red - News and Views on Climate Change Issues.

hile Gore was struggling to launch his cable network in late 2003, he was also moving on another front: starting an investment firm based on a new definition of sustainability. Metropolitan West Financial, an L.A.-based asset-management outfit where he'd been vice chairman for two years, had just been sold to Wachovia (NYSE:WB). (Gore's former Senate chief of staff, Peter Knight, was a Met West managing director and had recruited him.) Gore had his hefty payout from the deal, plus a desire "to incorporate sustainability values into the financial-services work that I was doing." Goldman's Murphy introduced him to David Blood, then CEO of Goldman Sachs Asset Management. "They were both talking to me about similar things," Murphy recalls, "deep conversations about emerging markets, sustainability issues, and new ways of making investments. They were both asking, 'Can this make money? Can this be a business?'"

"I was interested in creating a business around investing, which I love, and philanthropy," Blood says. He and Gore met many times, both in London, where Blood is based, and in the United States, to talk about values and skills. "It's not exactly like choosing a spouse," Blood says of selecting a business partner. But it's close. "You have to know that you can work together, have the difficult conversations. You need 100% trust and confidence." They worked together on a statement of values for their company, which they named Generation Investment Management. When they launched in August 2004, they made no move to attract outside investors--which, despite the catcalls from Gore detractors, was entirely by design, says Blood. "We spent a year playing with our own money," he says--a pool of about $100 million from himself, Gore, Knight (whom Gore brought in from Met West), and three other founding partners. "We didn't want to raise money first and then come up with an idea," Blood says. "What we really needed to do was invent a new language."

Rather than rely on short-term earnings projections, they thought long-term investment potential--and good management--could be better gauged by looking at factors such as whether a company was preparing for a carbon-neutral future. Environmental stewardship, though, is just part of how Generation defines sustainability. "We think about how businesses attract and retain employees, governance, branding; how they operate in the community; and how all of that drives their business strategy," Blood explains. "We have a belief that explicit recognition of environmental, social, governance, economic, and ethical factors affect business." Generation's research team, led by Colin le Duc, has both environmental economists and traditional buy-side equity analysts, who have learned to ask a wider range of questions of the companies they cover. The firm plans to build a long-term portfolio of only 30 to 50 companies. Blood claims that returns so far have exceeded expectations, although he won't divulge specifics. (See "An Inconvenient Portfolio" for some of the firm's holdings.)

The firm now has nearly $1 billion under management, from 15 institutions, plus a few individuals. And it has turned down some investors. Says Blood: "Anybody who is expecting a monthly report on how their stocks are doing isn't for us."