Jun 22, 2020 · 58m · capital-allocators
Sustainable Investing 5: David Blood - Pioneering a Generation (Capital Allocators, EP.143)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews David Blood, co-founder of Generation Investment Management, about the philosophy and execution of sustainable investing. Blood explains how rigorous ESG integration, disciplined portfolio construction, and purpose-driven corporate stewardship drive superior risk-adjusted alpha while accelerating the global transition to a net-zero economy.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 19% of the talking time here. How this is scored →
Ted as informed peer 2.5 Guest teaching 2.5 Guest disagreement 0.5 Ted pushing back 0.3
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 47:48 Pushing back on dismissive ESG stereotypes
David directly attacks the persistent industry perception that ESG investing is unrigorous hand-holding rather than hard-nosed financial analysis.
Hardest push from Ted ▶ 41:42 Ted questions activism for focus list firmsTed directly challenges David's logic, arguing that if a company requires activist intervention, it shouldn't meet their high-quality focus list criteria in the first place.
Biggest teaching moment ▶ 30:25 Explaining why checkbox ESG failsDavid educates the audience on why index-based checklist screens fail to capture the nuanced trade-offs required in genuine sustainable investing.
Ted holds their own ▶ 51:59 Ted frames the cost-profitability dilemmaTed displays sharp economic literacy by challenging how higher cost structures and supply chain redundancies post-pandemic will impact corporate profitability.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Wellington Management Miniseries Sponsorship Dedication | 0 | 0 | 0 | 0 | Solo host intro and sponsor dedication for Wellington Management miniseries. Purely promotional and explanatory monologue. | |
| Alliance for Decision Education Announcement and Handover | 1 | 2 | 0 | 0 | Host finishes intro announcement for Alliance for Decision Education and invites David Blood to share his early educational and career path. David recounts his journey from child psychology into banking. | |
| Building Businesses and Asset Management at Goldman Sachs | 2 | 2 | 0 | 0 | Host asks David about his specific roles across Goldman Sachs. David explains his track record of building internal businesses rather than functioning as a pure investor. | |
| Retirement from Goldman Sachs and Founding Generation | 2 | 3 | 0 | 0 | David details leaving Goldman after it went public and his serendipitous partnership with Al Gore to co-found Generation Investment Management, combining poverty and climate perspectives. | |
| Core Philosophy: ESG Integration and Economic Drivers | 3 | 4 | 2 | 0 | David explains Generation's core 3-part framework, forcefully repudiating the notion that ESG investing involves sacrificing returns for moral values. | |
| Boutique Structure, Fee Alignment, and Purpose-Driven Model | 2 | 3 | 0 | 0 | David outlines firm design choices including capacity capping, a 3-year rolling performance fee structure to avoid asset-gathering, and funding the Generation Foundation. | |
| Investment Process: Industry Roadmaps and the Focus List | 2 | 2 | 0 | 0 | David details the investment process starting from macroeconomic drivers of change down to sector roadmaps and a rigorous 125-company focus list. | |
| Sector Selection, Hydrocarbon Avoidance, and Picks-and-Shovels | 3 | 3 | 1 | 0 | David emphasizes that Generation does not rely on negative screens, clarifying that their complete avoidance of hydrocarbons is an economic decision based on unpriced climate risk and stranded assets. | |
| Holistic ESG Analysis and Nuanced Trade-Offs | 3 | 4 | 1 | 0 | David explains why checklist ESG approaches fail and how holistic analysis involves navigating complex shades of gray, citing their decision to exit Facebook over data governance. | |
| High-Quality Mandate and Team Decision-Making Mechanisms | 3 | 2 | 0 | 0 | Ted probes whether Generation targets already-great businesses or turnarounds. David affirms their high-quality mandate and explains their simultaneous voting system to mitigate bias. | |
| Concentrated Portfolio Construction and Focus List Turnover | 4 | 2 | 1 | 3 | Ted pushes back on the role of shareholder activism if companies on the focus list are already high quality. David clarifies how stewardship works and when public escalation or divestment happens. | |
| Urgency of Net-Zero and the Transformation of Capitalism | 2 | 3 | 1 | 0 | David outlines why all capital allocation inherently has impact and argues that transitioning to net-zero represents the most massive economic transformation in modern history. | |
| Amplifying Systemic Impact and Catalytic Investments | 3 | 3 | 2 | 1 | Ted asks where skepticism remains. David humorously mocks the caricature that ESG investors merely sing Kumbaya and re-asserts the rigorous business case. | |
| Philanthropic Strategy and the Generation Foundation | 3 | 2 | 0 | 0 | Ted asks for a non-obvious portfolio company. David explains why healthcare distributor Henry Schein fits their sustainable capitalism framework due to stakeholder management and culture. | |
| Post-Pandemic Economic Recovery and Sustainable Capitalism | 4 | 2 | 0 | 0 | Ted articulates the post-pandemic supply chain and cost structure friction vs profitability. David agrees, providing long-term perspective before moving into standard closing rapid-fire questions. |
Statements from this episode (19)
Blood: Major financial firm bankruptcies stem mostly from cultural failures
“Turns out that since I've been in finance now 35 years, there have been, I think, probably 10, 15 major organizations that have gone bankrupt, and they've mostly gone out of business for failures of culture and business principles”
Blood: Employee treatment and governance structures predict corporate success
“Understanding companies and understanding management teams, you could get a sense of whether they would be successful or not dependent upon how they treated their people, their compensation structures, their leadership structures, their governance structures.”
Goldman Sachs considered and rejected launching an online broker in 1996
“I was actually asked In 1996 to consider whether Goldman Sachs should set up an online discount broker. Which we ultimately included was a bad idea”
Blood: Voted against taking Goldman Sachs public in 1998 and 1999
“I was very committed to Goldman Sachs and its business principles and culture, and I was one of the partners who voted to stay private in 1999, actually originally in 1998.”
Al Gore asked Goldman Sachs to advise on a $35M sustainability acquisition
“Phil had been approached by Al Gore about Goldman Sachs representing Gore in acquiring a company called Sustainable Asset Management. And it was a very small acquisition. I think it would have been thirty-five million dollars or something like that, an acquisi…”
Blood: Generation's launch team was one-third sustainability, two-thirds investing
“Interestingly, a third of the 12 or 16 people came from sustainability backgrounds And the other two thirds came from traditional investing backgrounds.”
David Blood: Generation's profits come entirely from performance fees, not AUM
“And so very specifically, since we founded the firm in 2004, Almost to the penny, every dollar that we've earned in performance fee has been our profit. We've not had profits based on asset center management.”
Blood: Sustainable advocacy is ignored without consistent, strong returns
“Well, actually, if we cannot deliver significant and consistent, strong investment results, we can do all the advocacy we want, but no one will listen because it'll be uninspiring.”
Blood: Generation maintains an active focus list of about 125 companies
“Develop ultimately what we call our focus list, a list of, it's now I think about a 125 companies that we're actively following and researching that subject to price we're prepared to invest in.”
Blood: Generation does not use negative screening to select portfolio companies
“Oftentimes, people have thought, well, sustainable investors, generation, all you're doing, you're excluding industries, and you're negative screening, and we've never done that. We've always actually been positively defining what are the types of businesses w…”
Blood: Generation runs a concentrated portfolio of 40 to 50 stocks
“We're concentrated. I know many people think concentrated is 20 to 25 stocks. We're sort of 40 to 50 stocks, and I can go into why we think that that's a better approach, but in any event, we're concentrated.”
Blood: Generation has avoided hydrocarbon investments for a decade on economic grounds
“So, for example, we have not owned energy businesses for a decade. We've not owned hydrocarbon businesses because we don't think they're priced properly. They haven't really priced the fact of climate change, and we think they have a significant stranded asset…”
Blood: Generation invested early in Facebook but exited over data practices
“We were investors in Facebook. Early on. And we ultimately decided that how they were treating information, and how they were dealing with some of their challenges, which they still have, was unsatisfactory to how we were thinking about sustainability.”
Blood: Generation uses simultaneous voting across the team to approve investments
“Mark and Miguel cannot buy something unless it's on the focus list, and the focus list is voted on by the entire global equity team. We wouldn't necessarily call it has to be unanimous, but we clearly tried to ensure that the votes are equally based, if you wi…”
Blood: Generation's top 10 positions comprise 40% to 50% of its portfolio
“And we tend to find that our 10 biggest positions can be a sort of 40 to 50% of our portfolio.”
Blood: Generation turns over its portfolio roughly once every 2 to 3 years
“Well, we very clearly talk about being long-term, and our portfolios will turn over sort of once every two or three years.”
Blood: Asset owners will require impact-based performance measurement within years
“And we think actually, as time goes on, and by time we mean couple of years, not decades, that all investors, all asset owners will be required, will require of us, and probably their own stakeholders will require that their investment performance be based upo…”
Blood: Net-zero transition will be most important economic shift in history
“We think that the transformation to net zero will be the most important economic transition in history, and therefore investors run significant risk as well as have significant opportunity if they manage this transition, this transformation very well.”
Blood: Generation emphasizes the business case for sustainable investing over ethics
“We've always felt that coming from investment backgrounds, we have a responsibility to always make the business case. We have strong views from ethics and morals perspective, and we can make that case, but we've always felt very strongly we have to make the bu…”