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California Pension Fund Purses Investment in Environmentally-Friendly Companies

Posted on: Thursday, 8 December 2005, 21:00 CST

By Gilbert Chan, The Sacramento Bee, Calif.

Dec. 8--In a possible boon to green stocks worldwide, trustees of the California State Teachers' Retirement System moved Wednesday to pursue money managers who invest primarily in environmentally oriented companies.

In the coming months, the nation's third-largest public pension fund will seek proposals to identify managers who can spearhead a groundbreaking green investment strategy for a portion of its $133 billion in assets.

The decision comes after a CalSTRS study reported a rapid rise in environmental investment funds and concluded competitive returns are feasible.

CalSTRS chief investment officer Christopher J. Ailman said the fund hasn't earmarked any money yet. But he added: "It's not uncommon for us to put $200 million to $300 million in a particular style."

More significantly, CalSTRS could be paving the way for other institutional investors to pump millions into green stocks and mutual funds while producing such benefits as reducing greenhouse gas emissions, one scholar said.

"It indicates there is a market shift," said James Hawley, a business professor at St. Mary's College in Moraga. "Businesses have been overly myopic about opportunities and risk here. CalSTRS and CalPERS have been at the forefront at these things."

Indeed, CalSTRS and the California Public Employees' Retirement System already have pledged to invest about $1 billion in clean technology companies developing everything from home water-treatment systems and power-generating solar farms. In addition, the two earlier this year joined a coalition of 26 pension funds globally to pressure corporate executives to report to shareholders the financial risks that global climate change poses to their companies.

These efforts, though, have been met by resistance from powerful U.S. business groups and the Bush administration. The White House has not signed onto the Kyoto Protocol aimed at curbing greenhouse gas emissions, which scientists say contribute to global warming. The president said mandatory pollution cuts would cost the United States nearly 5 million jobs.

Still, two leading CalSTRS and CalPERS trustees -- state Treasurer Phil Angelides and Controller Steve Westly -- have promoted the environmental investment campaign. Westly has focused on global warming while Angelides has pushed his so-called "green wave" investment initiative.

"We are setting a standard for smart environmental investing," Angelides said. "More and more investors are expressing their interest in environmentally responsible companies."

To achieve this, CalSTRS is targeting a new breed of money managers: stock pickers focused on green companies. The specialty is an outgrowth of "socially responsible" investing, which bases investment decisions on a company's track record on issues such as employment diversity, human rights and the environment.

While the green investment movement has been entrenched in Europe for a decade, the issue is in the formative stage in the United States.

"American firms, relative to Europe and Japanese firms, have been laggards," Hawley said.

Dan Bakal, a spokesman for Ceres, a Boston-based investor and environmental coalition, said CalSTRS is taking the first comprehensive review that zeroes in on environmental investment managers.

"It's not just a feel-good thing at all. Markets need to deal with climate change," Bakal said. "There is more and more evidence that you can get the returns you want."

Corporate giant General Electric Co., for example, has pledged to invest more than $1.5 billion over the next five years in technologies such as cleaner coal-fired power plants and hybrid diesel-electric locomotives. The company estimates the strategy could double sales of environmentally clean products to $20 billion by 2010.

Money managers have recognized this shift and are introducing more environmental investment instruments, the CalSTRS study said.

In 1990, there were no investments available. Today, 11 firms are offering 21 green investment funds. Moreover, 80 percent of socially responsible investor funds include environmental factors when evaluating companies. That amounts comes to $27 billion to $29 billion in assets handled by money managers.

So far, the initial investment results for U.S. environmental investments are mixed, the study said. But socially responsible funds with environmental investments outperformed or fared the same as their socially responsible peer group.

"There is anecdotal evidence here and there. There still isn't much of a hard track record," Ailman said.

Ailman said the review of potential money managers should paint a better picture of the burgeoning field. "There may be something here. It warrants a further look," he said.

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Source: The Sacramento Bee

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