CalPERS to Commit $500 Million to Environmentally-Friendly Companies

(November 11, 2010) — The California Public Employees Retirement System (CalPERS), aims to invest $500 million in a ‘green’ portfolio in an effort to limit greenhouse-gas emissions and improve the environment. The investment is in addition to about $2 billion CalPERS has committed to green-related investments in the past four years.

“This new index has kept pace with non-environmental investments in recent years, and has outperformed our external environmental managers who have focused solely on excluding polluting companies from their portfolios,” George Diehr, CalPERS investment committee chairman, said in a statement. CalPERS Board President Rob Feckner added that until now, the fund has invested in external managers whose funds screen out the “worst offending” public companies. But, he said the fund’s new green initiative — which relies on internal management — is a more robust and quantitative strategy.

The internal team responsible for managing the strategy will model it after HSBC’s Global Climate Change Benchmark Index (HSBC CCI), according to CalPERS. To be included in the portfolio, companies must derive a material portion of their revenues from low-carbon energy production, such as wind, solar, biofuels and other alternative energy; water, waste and pollution control; energy efficiency and management including building insulation, fuel cells and energy storage; and carbon trading and other capital deployment and financial products.

“Research shows that a positive inclusionary methodology for investing in common stock companies is more successful than a negative exclusionary approach that uses subjective rather than quantitative selection criteria,” Diehr said.

Since 2006, the $219 billion public fund has committed $500 million to external managers in its Global Equity asset class who restrict companies with a negative environmental footprint.