US - The California Public Employees' Retirement System (CalPERS) has invested $500m into a new internally managed strategy for investing in environmentally friendly companies.
The strategy will pick out global public companies that are "actively working to improve the environment and mitigate the adverse impact of climate change", the fund said.
In order to be included in the portfolio, companies must derive a material portion of their revenues from low-carbon energy production including 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.
"Until now, we've invested in external managers whose funds screen out the worst offending public companies," said CalPERS Board President Rob Feckner. "But this more robust, quantitative strategy will allow us on a large scale to support and become more directly involved in positive change by top performers that have improved share value and also done good for the environment."
The internal team responsible for managing the strategy will model it after HSBC's Global Climate Change Benchmark Index. As of year-end, the model had 380 securities across 36 countries with a minimum total capitalization of $400m.
"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," said George Diehr, chairman of the CalPERS investment committee.
"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."
Since 2006, CalPERS has committed $500m to external managers in its Global Equity asset class who restrict companies with a negative environmental footprint. The fund has also committed more than $1.5bn to its private equity Environmental Technology Programme.
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