Foundations Urged to Consider Environmental Issues in Investing Decisions

Foundations need to think about environmental concerns as they invest their endowment assets — not just because it’s the right thing to do, but to protect the longterm health of their portfolios, Al Gore, the former vice president, told a gathering here of grant makers, trustees, and investment advisers.

The nation’s credit crisis was triggered by faulty assumptions underlying subprime mortgages and the investments created around them, he said.

Similarly, there are trillions of dollars in “subprime carbon assets” that rely on premises that are just as shaky.

“The assumption that it is perfectly okay to put 70 million tons of global-warming pollution into the earth’s atmosphere every 24 hours is an assumption that is collapsing right now,” said Mr. Gore. “And if you’ve got lots of money tied up in subprime carbon assets, watch out.”

He added: “I can’t tell you precisely when that assumption is going to go splat, but that’s going to happen well within the time horizon over which you have a fiduciary responsibility to look out into the future and see what the risks are that you’re facing.”

Five years ago, Mr. Gore co-founded Generation Investment Management with David Blood, former chief executive of Goldman Sachs Asset Management. Generation analyzes companies’ environmental and social practices because it believes that over time companies that are environmentally and socially responsible will outperform their competitors.

“We really tried to take the conversation about sustainable investing from a niche conversation where we considered it being the expression of our values to the mainstream,” said Mr. Blood. “We think it makes us better investors.”

Mr. Blood told the audience that when he and Mr. Gore first started talking to institutional investors – pension funds, insurance companies, university endowments, and foundations — about their approach, he expected that foundations, because of their charitable missions, would be leaders in incorporating environmental factors into their investing.

“In fact, that hasn’t been the case,” said Mr. Blood. “Foundations have been laggard.”

He urged foundations to rethink their investment approaches.

Said Mr. Blood: “Anybody who has a fund manager who does not recognize that we are on the verge of one of the biggest economic changes in history, you’re running a huge risk.”