ESTea #14 23/07/21

Spotlight on: Generation Investment Management

What if Al Gore chaired a hedge fund dedicated to decarbonising the global economy and averting an ecological tipping point? Oh yeah, he already does that.

Generation Investment Management (GIM) was co-founded in 2004 by former US vice president Al Gore, and decorated Goldman veteran David Blood, with a goal to pursue and complete global sustainable investments. Interestingly, GIM predates Gore’s famous documentary film: An Inconvenient Truth, which kick-started much of the contemporary anglophone environmental movement.

$32bn of the $36bn under management by the GIM team, comes from their Global Equity Portfolio - with a further $1bn AUM in their private equity vehicle - Just Climate. While Just Climate fund is now closed, the Global Equity Fund continued to take investment and radically outperform its benchmark.

While information on returns is not public, some information is available online. In particular, the McKnight Foundation states that since their investment in 2014, the Global Equity Fund has returned over 15% annualised. Not bad when you’re saving the world at the same time.

ESG

Apart from investing in companies which fit their environmental macro themes, GIM has recently updated their proxy voting guidelines to be in-line with funds like TCI. As discussed in earlier ESTea newsletters, there is a strong trend, not only towards traditional activist investor actions, but also for less active funds to still use their votes carefully.

Rather than taking a traditional activist approach, GIM has a published a set of proxy vote guidelines available on their website. This is great news for the sector and sets a helpful precedent for ‘fire and forget’ proxy voting policies which don’t lead the investor to become activist - with all the baggage that entails.

With a view to the future, GIM’s most recent investor newsletter hints strongly at an upcoming focus on taxation - most likely following on from G7 efforts to agree and enforce a global minimum corporate tax rate.

We should, however, keep a close eye on implementation, which will be politically fraught in many places – not least on taxation and decarbonisation.

On taxation, watch this space. We will return to the topic in more detail in an Insights piece in the coming months.

This same letter compares a number of ESG and performance metrics for the portfolio to the fund benchmark. GMI’s substantial over-performance on carbon intensity and its apparent under performance in carbon reporting of portfolio companies is a further notable example of the best sustainable funds seeming to fall below average on portfolio carbon reporting.

This is an increasingly common phenomena where impact funds and credible sustainable investors officially score below benchmark on percentage of portfolio reporting emissions - a clear indication that the mid-point of ESG benchmarks over-value reporting and under-value decarbonisation.

Carbon reporting is an essential step to decarbonisation, but it is exactly that: a step on the way. You can’t build the wheels and suspension of a car and say that you have half a car so you can go half the distance.

As carbon reporting becomes more and more mainstream, no one should allow that to be a replacement for a reduction in the carbon footprint of these organisations and the funds which invest into them.

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