Al Gore, the man who five years ago won the popular vote but lost the US presidential elections by a few hanging chads, has a stark warning for all investors.
"Capitalism is at a critical juncture," he says, arguing that the focus on short-term results is undermining issues such as the long-term sustainability of profits, how a company relates to the community and its employees, and the environment.
Australia's politicians might prefer to quietly retire after securing lucrative business consultancy deals, but Gore is out to make a noise as co-founder and chairman of British-based sustainable investing company Generation Investment.
Al Gore says capitalism is at a critical juncture.
Photo: Michael Clayton-Jones
"If in the process of proving our business case that it is just good common sense to take these matters into consideration when making investment decisions, we can encourage other investors to do the same and have an impact on the behaviour of the market, then that's all for the good," he says.
Generation was formed when Gore met former Goldman Sachs chief executive David Blood and they began mulling over how to combine conventional equity market analysis with longer-term judgements about sustainability.
In an interview with The Age on the eve of the Association of Superannuation Funds of Australia conference, which he addressed in Melbourne last week, Gore says the payment structure for asset managers must reflect shareholders' long-term interest.
Generation is only paid after three years of returns, and then only if it beats the benchmark.
Retail investors are clamouring for a change to long-term sustainable goals, he says, with consumers pushing for lower carbon emissions as global warming awareness grows.
The refusal of the US and Australia to sign the Kyoto pact that Gore helped draft clearly annoys the former US vice-president. He draws parallels between those who dispute global warming, and its investment implications, with Neville Chamberlain and others who wanted to appease the Nazis before World War II.
Winston Churchill warned in the 1930s that a storm was gathering and democratic nations would be forced to "sip from the bitter cup" until they reasserted their moral authority.
"The time of half-measure has passed. We are entering a period of consequences," says Gore, quoting Churchill.
"What changed in the US with hurricane Katrina was a feeling that we have entered a period of consequences and that bitter cup will be offered to us again and again until we exert our moral authority and respond appropriately," he says. "I don't want to diminish the threat of terrorism at all, it is extremely serious, but on a long-term global basis, global warming is the most serious problem we are facing."
To be sure, holding a "feel-good" investment may appeal to the heart, but it's of no real use if it doesn't produce a healthy financial return.
Gore's partner David Blood (their other partners ruled out calling the company Blood and Gore for obvious reasons) says Generation doesn't ban entire sectors from its portfolio for purely ethical reasons. "Sustainable investing isn't something that's separate from traditional fundamental stock picking. It's an integral part. There are long-term issues that affect a company's ability to generate revenues and protect its competitive advantage," Blood says.
Industries such as tobacco, aren't excluded purely because the product slowly kills, but due to the litigation risk and what that means for future profit.
Gore says investing in uranium mining also comes down to sustainability. Although concerned about nuclear waste and the possibility of spent fuel rods falling into the wrong hands, he says he is not "reflexively against" nuclear energy. While only investing in about 40 stocks, Generation is willing to own up to 70 per cent of companies on the Morgan Stanley Capital International world index "based on hard economics", Blood says.
Copyright © 2005. The Age Company Ltd.