Al Gore, arguably the leading voice in sustainable finance, has taken the concept of ‘loyalty shares’ out of the academic realm and suggested it as a way of incentivizing long-term shareholders.
“Long-term investors need to be financially incentivized to consider long-term investment approaches,” said the former US Vice President and co-founder and chairman of sustainable funds firm Generation Investment Management.
“There are a number of innovative ideas to accomplish this goal, like loyalty shares,” Gore said.
He argued they could help transform academic research on long-term and sustainable investment “into a useful mechanism for investors”.
He was speaking at a conference in Paris organized by the Sovereign Wealth Fund Research Initiative at University Paris-Dauphine and the Committee on Global Thought at Columbia University.
Gore’s comments follow recent academic research which suggests L-shares could encourage longer-term investing by giving shareholders a reward after a contractually set period of time in the form of a warrant.This would give them the right to purchase a set number of new shares at a pre-specified price. A recent working paper by Columbia Business School Professor Patrick Bolton and Frederic Samama, head of the Sovereign Wealth Funds Research Initiative discussed the idea in detail.
“Loyalty-shares provide in our view a simple contractual innovation that helps restore the balance between long-term investors and short-term speculators,” the researchers conclude.
L-shares would not require firms to make radical financing and corporate governance changes and offered a simple correction towards a more long-term fundamental value outlook, they argued.
There was also a growing long-term oriented investor constituency comprising pension funds, employee stock-ownership plans, and sovereign wealth funds, which would be a “natural investor clientele”.
Gore also highlighted the role long-term investors such as sovereign wealth funds can play in green cities – given the impact of urban centres on energy consumption – and food security.