Al Gore Hits Out At ‘Unsustainable Capitalism’

By: EW News Desk Team   Date: 17 February 2012

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17 February 2012

Former U.S. vice-president Al Gore has hit out against what he sees as ‘unsustainable’ capitalism, and calls for remedial changes to the financial industry which can promote long-term and environmentally sustaining economic and investment growth.

Gore and David Blood, both founders of Generation Investment Management, released a white paper on Wednesday on how to do away with irresponsible short-term investment and to avoid future financial crises.

Notably, the pair is calling to end the practice of quarterly reporting as it incentivizes executives “encourages some investors to overemphasize the significance of these measures at the expense of the longer term, more meaningful measure of sustainable value creation.”

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Blood, a former Goldman Sachs employee said:

This is a direct appeal, dare I say, attack on short-termism in business. Today the average mutual fund in the U.S. turns over its entire portfolio every 7 months; 20 years ago it was every 7 years. Something has fundamentally changed and the problem with that is it means we're not making good investing decisions... and not delivering proper and efficient wealth creation.

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While calling the capitalist model “fundamentally superior to any other system for organizing economic activity”, Gore added:

Some of the ways in which [capitalism] is now practised do not incorporate sufficient regard for its impact on people, society and the planet. Capitalism in its current form is creating and fostering numerous challenges, not least short-termism, over-reliance on GDP growth as a primary metric of prosperity, rising inequality, increasing volatility in the global financial market, and growing contributions to the climate crisis.

Additionally, Gore and Blood warned that the risks from climate change and other environmental issues are not sufficiently reported in investment numbers. To accurately reflect such risks, they suggest that companies should account for high-carbon assets and its potential liability costs, given the onset of regulatory changes governing carbon emissions.

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At the same time, the white paper advocates “mandated integrated reporting”; a new set of accounting practices that requires companies to include investment performance on various environmental and social indicators alongside their financial results.

Addressing the growing debate on corporate compensation, the blueprint suggests linking bonuses to “rolling multiyear milestones for performance evaluation” instead of individual fiscal years. In that way, investors can also be encouraged to hold shares for the long-term by issuing ‘loyalty-driven securities.’

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