Wednesday, November 30, 2016

CalSTRS Highlights Green Investments

Green Bonds Featured

The California State Teachers' Retirement System (CalSTRS) has been an international leader in green investments and pushing for corporate accountability on environmental and climate issues.

CalSTRS recently released their tenth annual Green Initiative Task Force Report,  highlighting these activities.  The report discusses the growth of green bond investments.

Green Initiative Task Force Report 2016

According to CalSTRS, the growth in green bonds aligns with the commitment CalSTRS Chief Executive Officer Jack Ehnes made during the 2014 United Nations Climate Summit. At that time, Mr. Ehnes announced CalSTRS would more than double its clean energy and technology investments from $1.4 billion to $3.7 billion over the next five years. Green bonds have played a significant part.  Mr. Ehnes also participated in the COP21 Climate Summit in Paris last year, speaking about the importance of green investing.

CalSTRS CEO Jack Ehnes at COP21 in Paris, December, 2015

“We like green bonds because they offer competitive investment-grade and high-yield returns that fit in well with our Fixed Income Portfolio,” said CalSTRS Investment Officer Cathy DiSalvo, who manages the green bonds program. “Organizations issue green bonds because they have projects to fund that have both environmental and economic benefits.” DiSalvo represents CalSTRS on the Climate Bonds Standards Advisory Board, an entity developing standards and certification protocols for green bond issuances worldwide.

“This past August, CalSTRS purchased $5 million in green bonds from the Asian Development Bank, making us one of about 70 investors in the bank’s $1.3 billion issuance,” Ms. DiSalvo said.

CalSTRS Green Bond Holdings
Source:  Green Initiative Task Force Report 2016

In addition to the Asian Development Bank bonds, CalSTRS green bond investments have benefitted projects throughout the world, including adaptation projects in Africa, municipal projects in Sweden, renewable energy in Korea and green buildings in the United States.

According to CalSTRS, projects funded with green bonds in 2016 included:
  • Renewable energy—from Export-Import Bank of Korea, Georgia Power, Westar Energy, the European Investment Bank, and Morgan Stanley.
  • Climate change mitigation and adaption—from the African Development Bank, Export Development Canada, Kommuninvest (Sweden), and Nederlandse Waterschapsbank (The Netherlands).
  • Public transportation and waste management—from European Bank for Reconstruction and Development, and ING Bank.
  • Hybrid/electric vehicles—Toyota Motor Corp.
One sector that has not benefitted from U.S. public employee pension funds such as CalSTRS is local government projects in the United States. This is because U.S. municipal bonds usually have very low returns because the income on them is tax-free.  Since CalSTRS can't take advantage of this favorable tax treatment, the bonds are much less attractive than corporate bonds or bonds from other countries.  State Treasurer John Chiang is expected to discuss this issue in an upcoming report on green bonds (CalGreenFinance post here).  California government agencies have issued over $1 billion in green bonds in 2016, more than double the amount issued in 2015 (CalGreenFinance post with listing of California municipal green bond issuances here).

CalSTRS cites several benefits of green bonds, including price stability due to the fact that the bonds are traded less frequently than standard bonds because they are purchased mostly by buy and hold investors. They also offer increased reporting to track the progress of projects the bonds finance.

In addition to green bond, stock and real estate holdings,  CalSTRS is investing in clean technology opportunities as part of their venture capital and other funding.  The chart below summarizes nearly $700 million in holdings:

CalSTRS Clean Technology/Clean Energy Investments
Source:  Green Initiative Task Force Report 2016
Even as CalSTRS shows global leadership on climate and environmental investment, some CalSTRS members would like them to be more aggressive in their divestments from fossil fuel related companies.  CalSTRS has already moved to divest from coal companies (see Reuters story here), but groups such as Fossil Free California are pushing them to remove oil holdings from their portfolio.

"Members of the CalSTRS board are increasingly tuned in to the dangers of climate change," says Sandy Emerson of Fossil Free California.  "They are beginning to adjust their financial decisions to focus on more sustainable holdings. We at Fossil Free California applaud their efforts. But so far the shift in investment policy is not large enough or fast enough to counter the urgent dangers of the climate crisis. CalSTRS must do more, for the sake of the environment — and for the sake of teachers’ pensions."