Blood and Gore – who are now senior partner and chairman at Generation Investment Management – published a five-point plan for sustainable capitalism, which they want the financial industry to adopt.
They recommend that companies issue earnings guidance only when they deem appropriate, if at all, saying an end to quarterly guidance would encourage companies and investors to think about more long-term, meaningful measures of sustainable value creation.
They say that although companies are reporting more data more often, this hasn’t necessarily given investors better insight. Integrated reporting would address this problem by creating one financial and sustainability report that includes only the most material metrics, the authors say.
Among the five action points in the blueprint, Blood and Gore also say that companies and investors must identify and incorporate risk from stranded assets, those whose value would change dramatically (for better or for worse) when large externalities such as carbon pricing are taken into account. They compared these assets’ risk to that of subprime mortgages, whose flaws were realized too late to prevent a global recession.
The authors called for companies to align compensation with long-term sustainable performance, using rolling multi-year milestones for performance evaluation.
And they called for companies to issue securities that reward investors for holding their shares for a number of years, further helping to facilitate long-term value creation, as well as stability in financial markets.
At a briefing, Blood said short-termism has hobbled capitalism by raising market volatility, directing attention from the pressing problems of climate change, and increasing the gap between rich and poor, Reuters reported. He said governments will have to take part in the creation of sustainable capitalism, but ultimately the solution is up to companies and investors.