JEDDAH: The UN accepts global warming as a fact. Although the science confirming global warming is hotly debated in some quarters, there is a growing movement to reduce carbon emissions and pollution in industry in many countries — though significantly not so much among some of the main polluters — and develop industries along environmentally friendly lines.
That trend has opened up financial opportunities — for governments a chance to tax polluting industries and consumer products; for the investor, a chance to invest in “green” industries as a long-term strategy. It has also given birth to an entirely new area of financial trading in the form of carbon credits.
Investing in green industries surely produces lower returns than established but traditional industries? Not so says David Blood, co-founder and managing partner of Generation Investment Management (GIM). “We certainly do not agree that sustainable investment requires reduced returns on capital. In fact, we believe the opposite is true,” he said. He said that GIM’s first priority was to generate superior returns for its investors. He believed that the best way to do this was to take into account a broader range of factors that could affect a company’s ability to deliver returns. “We integrate traditional equity analysis with sustainability research in order to get a fuller picture of the likely future performance of a company, so that we can deliver higher, not lower, returns.”
GIM was first launched in 2004 by the Nobel Laureate Al Gore and Blood. The ethic that supported the creation of the project was “sustainability investing”. Blood defined this as “the explicit recognition that social, economic, environmental, governance and ethical factors directly affect business strategy and the ability of a company to sustain performance over a long period of time.” These factors may include how companies attract and retain employees, climate change (both managing risks and creating opportunity), the company culture and approach to ethics, corporate governance standards, stakeholders and community engagement strategies, philanthropy, reputation and brands.
GIM spent three years putting together its team and in 2007 approached Lombard Odier Darier Hentsch & Cie. (LODHC), a private Swiss-based bank with a 200-year history.
Thierry Lombard, senior partner of LODHC wrote in the interview that the company had been in very close contact with both Gore and David Blood, since the beginning of their project. “We kept in contact knowing that we shared the same value and the same conviction on sustainable investing. We finally announced our exclusive partnership in November 2007,” he said.
Lombard thought that investing in sustainability was one of the most important trends in long-term investing and decided to work closely with GIM in this field. LODH’s Partners and Families had, he said a long-standing tradition of supporting sustainable development projects.
Lombard said the firm had long history of sustainable development and socially responsible investment. In the early 19th century, Alexandre Lombard spoke out against investing in slave-owning US states believing that slavery produced suffering and that prosperity must be grounded in humanist principles of sustainability.
He noted that over ten years ago, the recognition of the increasing influence of intangible assets on stock market performances prompted LODHC to integrate socially responsible investment criteria in its analysis. “We took more recently the process one step further with the launch of a specific investment product combining qualitative analysis with quantitative management. We further strengthened its commitment last year to sustainable investing this time focusing on opportunities related to sustainable development issues, with a thematic product on renewable resources and the global sustainability equity product launched with GIM.
This year, the firm announced the launch of the LODHC Chair for Future Generations at the Swiss Federal Institute for Technology in Lausanne (Switzerland). The project he opined reaffirmed the commitment of LODHC to the transmission of knowledge and innovation in the field of sustainable development. “So, there’s no debate between being a wise investor and a green philanthropist. Those decisions show the coherence of our vision,” he said
“It was important for generation to find a partner who shares our belief and understanding of the economic, social and environmental considerations that are critical to business,” Blood commented.” He noted that the values and traditions of sustainable development were espoused by the founding families of LODH over 200 years ago and that this commitment was embedded in its approach to business today.” Asked if there were any marketing link between the foundation of GIM and the Oscar winning film “An Inconvenient Truth,” Blood pointed to Gore’s history of environmental concern. He said that Gore had spent decades highlighting the likely implications of the climate crisis and wrote his first book on the subject, “Earth In The Balance,” in 1992. “Generation was established in 2004, well before Gore was approached by the producer of ‘An Inconvenient Truth’ in 2005 about his interest in making the film. The success of the film was unprecedented in a way that no one, including Al Gore, could have predicted.”
Climate change is just one of many factors that GIM believes is important to investing. “We do very detailed research into several global themes which we believe may have material implications for business, and make this research available (www.generationim.com).
LODHC has had links with the GCC (Gulf Cooperation Council) region for over 50 years and as part of a natural progression set up a representative office in Dubai in 2007. The area provides a great deal of the hydrocarbon products that have contributed to global warming and climate change. Did Lombard find any contradictions in looking for green investment from the region?
“We find that investors from the Kingdom are receptive and willing to embrace an integration of “sustainable investing” principles in their investment strategy on a long-term view,” he said. “Most of them have a large exposure to the oil and gas industry which raises the challenges we know in the long run. Therefore adopting a sustainability approach to their investment brings a very interesting way to diversify their portfolio.”
