Generation's investment philosophy integrates sustainability research into a rigorous traditional investment process in order to deliver superior long-term results.
Investing for the Long-Term
Numerous studies show that most of a company's value is determined by its long-run performance, and in our view a short-term orientation has significant negative repercussions for businesses and the global economy. If businesses are forgoing value-creating investments to manage short-term earnings, this will damage their long-term prospects. A short-term perspective hinders innovation and research and development, diminishes investment in human capital, encourages financial gymnastics and discourages leadership. We believe outperformance requires a long-term outlook.
Sustainability as Material to Business and Markets
Central to our investment philosophy is the explicit recognition that sustainability factors directly affect long-term business profitability. The interests of shareholders, over time, will be best served by companies that maximize their financial performance by strategically managing their economic, social and environmental performance.
A Systemic View of Global Challenges
When considering sustainability, Generation focuses on the entire spectrum of interrelated factors. This means judging solutions on a life-cycle basis and considering the complete set of inputs, costs and externalities. Sustainability challenges are increasingly interconnected: the climate crisis and poverty, pandemics and demographics, water scarcity and migration/urbanization. We never consider sustainability challenges in isolation.
Sustainable Development as Economically Transformative
Today, the global context for business is clearly changing—capital markets and capitalism are at a critical juncture. We are convinced that the transition from a high-carbon to low-carbon economy will be the most significant process in modern economic history—matching the Industrial Revolution in scale, and the technological revolution in pace. We believe investors are increasingly aware of the materiality of this transition for business, and we think financial markets have a significant opportunity to chart the way forward. In fact, we believe sustainable solutions will be the primary driver of industrial and economic development for the coming decades.
The UK Stewardship Code
The UK Stewardship Code was published in July 2010. It aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders by setting out good practice on engagement with investee companies to which the FRC believes institutional investors should aspire. Generation Investment Management fully welcomes and supports the UK Stewardship Code initiative and our response to the code can be found here.