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April 14, 2005
Vermont Issues Call to Investment Managers for Environmentally Sustainable Portfolio
    by William Baue

Request for Information asks investment managers about their positive and negative screening practices as well as financial performance, particularly of environmentally sustainable portfolios.

Earlier this week, New England Pension Consultants (NEPC) issued a Request for Information (RFI) from investment managers who specialize in environmental sustainability strategies at the behest of Vermont Treasurer Jeb Spaulding. The Vermont State Retirement System (VSRS) and Vermont State Teachers' Retirement System (VSTRS) are pursuing plans to screen a portfolio by environmental criteria.

"This RFI results from a request from me to the trustees of the two systems to consider an allocation to environmentally sound investment management strategies by conducting an RFP [Request for Proposals] for an environmentally managed US large-cap or Global mandate," Treasurer Spaulding told

Treasurer Spaulding administers investment policies and strategies adopted by the Boards of Trustees for Vermont state pensions, which have combined assets of over $2.4 billion.

"The objective of this initiative is to reduce environmental and associated financial risk to our portfolios, to enhance long-term investment returns, and to encourage environmentally responsible corporate management," he continued. "We plan to review the responses to the RFI and invite selected vendors to submit formal proposals."

Treasurer Spaulding follows in the footsteps of California Treasurer Phil Angelides, who in early 2004 proposed the Green Wave initiative that the California Public Employees Retirement System (CalPERS--the largest US pension fund at $183 billion in assets) recently implemented. One prong of this four-pronged program calls for applying environmental screens on a $500 million portfolio. Maine Treasurer David Lemoine is also a step or two ahead of Vermont, having selected Light Green Advisors as investment manager to apply best-in-class environmental screening to a portfolio consisting of two percent of the Maine Trust Funds.

Treasurer Spaulding remains agnostic as to whether he prefers exclusionary screens that eliminate sectors from consideration, best-in-class screens that reward best practice across all sectors, or weighting strategies that tilt holding concentrations toward better-rated companies.

"As far as screens, we are open to considering any of these strategies, and will make a determination based on the responses to RFI and RFP process," he said.

The RFI asks for detailed information on investment managers' experience in environmental screening. For example, it inquires whether managers apply positive, negative, or no screens in 11 areas, including corporate accountability, fossil fuels, and pollution. It breaks these categories further into subcategories such as sustainable development and urban sprawl under land management.

The potential size of the portfolio also remains to be determined.

"The background information I provided to the boards referred to up to 3 percent of the total large-cap allocation--approximately $20 million--but, again, no decision will be made about whether to actually select and fund a manager or managers until review of proposals is complete," he stated.

Selection criteria will of course include financial performance, as the RFI asks for quarterly performance returns compared to the relevant benchmark (S&P 500 or MSCI World) as well as information on how environmental screens have impacted performance over time. Treasurer Spaulding also intends to compare financial performance to the median manager in their peer group universe.

Investment managers have until May 6, 2005 to submit information to NEPC.


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