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Former VP Gore to Launch SRI Mutual Fund


He may not have "invented the Internet" but experts agree that a new mutual fund that former Vice President Al Gore is planning to launch is part of a new movement in socially responsible investing.

Gore, along with David Blood, the former CEO of Goldman Sachs Asset Management, Mark Ferguson, Goldman's former co-head of research, and three other partners, are expected to launch a mutual fund in the first quarter of 2005 based on a relatively new type of ethical investing called sustainability research. The investment advisor, Generation Investment Management, will have offices in Washington and London, enabling the investment team to find 30 to 50 large-cap companies throughout the world that either employ socially responsible or environmentally friendly policies. At the same time, the fund will give equal weight to companies based upon traditional criteria for strong profitability and sustainable, long-term growth, said Richard Campbell, a spokesman for Generation Investment Management.

"The main way this fund will distinguish itself from other socially responsible or ethical funds will be the way it integrates traditional, established, respected investment managers with sustainability experts who will conduct in-depth, proprietary research into attractive sectors and individual companies," Campbell said. The first generation of ethical investing concentrated on negative screens that eliminated companies thought to be offensive, such as ammunition or tobacco manufacturers, he said. The second generation used questionnaires as positive screens to find companies with socially responsible policies, such as superior corporate governance, a diverse board or health benefits for domestic partners.

The problem with both of these methods is that they relegate performance and earnings to a secondary concern and overlook firms that are making strides to become environmentally and socially conscious, even in so-called undesirable sectors, he said. Furthermore, many SRI funds monitor for so many different criteria that it severely limits the investment pool. Calvert, for instance, looks at seven criteria: corporate governance, the environment, workplace issues, human rights issues, indigenous people's rights, community relations and product integrity.

"A lot of SRI funds just want to talk about their screening process, and that's not enough to compete with other money managers that have a disciplined investment strategy," said Dan Sondhelm, a partner with SunStar of Alexandria, Va., which has provided consulting services to SRI funds over the years.

Instead, Generation Investment Management will look for companies that are well-positioned in their industry to do a better job of serving society than their competitors, and that could even mean investing in automotive or petroleum companies, Campbell said. Toyota, for instance, has worked to lower gas emissions, while T. Rowe Price has attracted more assets during the mutual fund crisis because of its strong reputation for integrity and ethics, he noted.

"The partners of Generation absolutely believe that there are a whole host of non-financial factors -- cultural, political and social -- that influence a company's long-term performance," he said, adding that the fund will probably hold stocks for an average of three years. As Gore himself told one media outlet last week: "Transparency, eco-efficiency, nurturing employees and managing long-term risks are among the integral parts of a company's enduring capability to create value."

Although Gore won't pick individual stocks, he will advise the investment team on geopolitical and environmental issues and trends. It also won't hurt that he is recognized throughout the world as a passionate champion of environmental issues, said Matthew Patsky, portfolio manager of the Winslow Green Growth Fund, a $200 million, environmentally screened small-cap growth fund in Boston. That alone should open the door to the fund's target clientele of endowments, pensions and high-net-worth individuals and family offices, Patsky said.

Between leveraging Gore's high-profile participation, which is unusual for any mutual fund, and the fund's focused, sustainability approach, Generation Investment Management might well distinguish itself in what has become a fairly crowded social investment category, Patsky said. Assets in socially screened funds have grown from $1.2 trillion in 1997 to $2.2 trillion in 2003 in a total of 178 funds, up from 154 in 2001, according to the Social Investment Forum of Washington.

In fact, Generation Investment Management is launching at an opportune time when many pensions and other institutional investors are beginning to seek out SRI funds, including CalPERS and CalSTERS, which recently committed $900 million to this type of investment, Patsky said. "The bigger pools of money are finally opening up to the idea that socially screened funds can deliver improved returns," he said. "For many of us, this has been a 20-year struggle, and we are thrilled to have Al Gore join us in this crusade and hope he helps us get a major breakthrough."

As to whether a sustainability research fund can deliver equal or better returns than other funds, Todd Larson, a spokesman for the Social Investment Forum, says repeated studies all find that socially responsible funds are competitive. A new book on SRI investing, Cause for Success (New World Library), makes a case for how corporate social responsibility creates results both for society and company profits. Since British Petroleum decided seven years ago to produce cleaner fuels, its original $20 million investment has generated $650 million in shareholder value, said Christine Arena, the book's author. By reducing carbon monoxide emissions by 10% in that time, BP today is the world's top provider of cleaner-burning fuels and the second-largest producer of solar panels, she noted.

"When a company does something to recycle or lessen their negative impact on the environment, they become more efficient in handling waste and use less energy," which leads to significant savings and higher profits, Arena said. "I think this is the most important business trend of the 21st century."