Green with envy

January 3, 2014 admin

The California State Teachers’ Retirement System published its seventh annual Green Initiative Task Force annual report in December for the year ending June 30, 2013.

The report details the retirements system’s “activities surrounding environmental risk management and opportunity capture,” notes an introduction letter by CIO Chris Ailman.

“According to Munich Re, in 2012, 905 natural catastrophes worldwide resulted in 9,600 fatalities and overall losses of $170 billion. Institutional investors cannot ignore the importance of working to minimize the frequency and impact of these environmental related events,” Ailman continues. “There are significant financial, legal and reputational risks involved and, as fiduciaries, it is an investor’s responsibility to work to mitigate these risks.”

Ailman also points out that the environmental risks present opportunities. “Efforts to reduce carbon emissions and provide relief to water-stressed regions present opportunities to investors positioned to analyze and act on them. Perhaps most notable are the investment opportunities surrounding clean energy production and transmission, and technologies that support resource efficiency.”

Since the previous task force annual report, CalSTRS has increased its green investments in large part using its “inflation sensitive” asset class. “Inflation Sensitive is largely focused on infrastructure investments, and we have taken advantage of opportunities in clean energy production and transmission investments, as well as several energy efficient facilities,” notes Ailman.

An example of CalSTRS’ green infrastructure investments is a commitment to First Reserve Energy Infrastructure Fund I, which has a total of $153 million invested in SunEdison Reserve, owner of a portfolio of contracted solar photovoltaic power generation facilities in Europe and North America. The retirement system also has invested in the Montreal University Hospital Research Centre through a commitment to Meridiam Infrastructure.

It is often said in the world of pension fund investors that the small follow the large. In other words, smaller and mid-sized pensions are often risk-averse and will not venture into new markets until the larger pensions — a CalSTRS, for example — do so. Will more pensions follow CalSTRS’ lead and use their infrastructure allocations to invest in green infrastructure such as renewable energy and resource efficiency? Investment managers looking to raise capital for infrastructure investment should at the very least take note of CalSTRS’ 2013 green infrastructure investments — it could be a sign of more to come.

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DrewWebsiteDrew Campbell is senior editor of Institutional Investing in Infrastructure.

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