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February 06, 2004
California Treasurer Proposes Environmental Screening for State Pension Investments
    by William Baue

California Treasurer Phil Angelides pitches the Green Wave Initiative to CalPERS and CalSTRS, the state's huge pension funds, asking them to support green investments.


Earlier this week, California State Treasurer Phil Angelides proposed the Green Wave Initiative, a four-pronged program for the state's public pension plans to support environmentally responsible investing. The proposal calls for the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS) to funnel $1.5 billion into environmentally-sound investments.

Treasurer Angelides, who sits on the boards of both CalPERS and CalSTRS, cited extensive research showing how such investments could enhance long-term shareowner value. As the nation's largest and third -largest pension funds with $164 billion and $113 billion portfolios respectively, CalPERS and CalSTRS often set precedents that other institutional investors follow.

"Green Wave could have enormous implications for institutional investors," said Joan Bavaria, who spoke at the press conference. Ms. Bavaria is president of Trillium Asset Management and founding chair of the Coalition for Environmentally Responsible Economies (CERES). "Treasurer Angelides has challenged CalPERS and CalSTRS to take positive action to support a sustainable future--it will be hard for them to refuse these four initiatives, which were conceived carefully to avoid any kind of reckless disregard for financial fiduciary duties."

The first of the four prongs calls on the CalPERS and CalSTRS to demand environmental accountability and reporting through a new environmental governance program.

The second prong asks them to allocate a combined $500 million to private equity investments, venture capital, and project financing in environmental technologies.

The third prong urges the pension plans to apply environmental screening of companies to funds with a combined $1 billion in assets.

And the fourth prong calls for auditing the plans' real estate portfolios, which now hold a combined $16 billion in real estate in California and in 22 countries around the world, to maximize clean energy, energy efficiency, and green building standards.

"No decision has been made by CalPERS regarding this initiative," said Brad Pacheco, a CalPERS spokesperson. "The treasurer is one of 13 members that sit on our Investment Committee and it will take a decision by the full Committee to proceed with this initiative."

"Our investment staff has begun to analyze these types of investments and is expected to report back to our Investment Committee at their March meetings with their findings," Mr. Pacheco told SocialFunds.com.

Similarly, CalSTRS spokesperson Kirsten Macintyre told SocialFunds.com that the CalSTRS board has discussed the initiative but has not voted on implementing it, which it would only do after careful consideration.

The treasurer makes a strong case for implementation, documenting extensive research supporting his plans. For example, he cites a 2002 report by Seattle-based Light Green Advisors, entitled The Profitable Correlation Between Environmental and Financial Research, that surveys the findings of 20 empirical studies on this correlation covering the last decade.

"Among the findings, it is reported that companies that go beyond legal compliance with environmental regulations realize stronger stock price gains and market value growth than the S&P [500]," states a fact sheet from the treasurer's office. "In contrast, laggard companies that are threatened by actual or impending laws tended to experience weaker returns."

This body of research supports the treasurer's contention that his fiduciary duty to enhance value requires him to address these environmental risks and opportunities. This view starkly contrasts the conventional wisdom that fiduciary responsibility prevents institutional investors from taking environmental issues into consideration.

"The treasurer is an articulate and powerful proponent of a new interpretation of the term 'fiduciary' to include a responsibility for the environmental and social outcomes of the investing process and investing decisions," said Ms. Bavaria.

 

 
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