Two of the three largest public pension funds in the U.S. -- California Public Employees' Retirement System (CalPERS) and California State Teachers' Retirement System (CalSTRS) -- are considering a new environmentally-focused investment program. State Treasurer Phil Angelides, a board member of both funds, announced in February 2004 that he will present detailed proposals for consideration by each board in the next several months.

Angelides' Green Wave Initiative includes four recommendations:

1. Private Equity and Project Financing for Environmental Technologies

CalPERS and CalSTRS should invest a combined $500 million in private equity investments, venture capital, and project financing to develop clean technologies, seeking a triple bottom line of positive long-term financial returns, solutions to environmental challenges, and statewide economic development. This capital would be directed primarily, but not exclusively, to California companies. By his emphasis on "positive" returns, Angelides leaves open the question of whether the proposed investments must target competitive market returns or may sacrifice some financial return in order to achieve environmental and social objectives. A small but growing number of private equity managers currently target environmentally related technologies and companies (see Sustainable Private Equity). In a related development, the staff of CalPERS has already been studying private equity investing in the clean technology sector, on which it is expected to report at the fund's next board meeting on March 15, 2004.

2. Environmentally Screened Public Equity Portfolios

CalPERS and CalSTRS should invest a combined $1 billion in environmentally screened, actively managed public equity portfolios. A number of established managers have experience in this area. Angelides is specific that the managers of environmentally screened portfolios must meet or exceed the performance of the pension funds' other active public equity managers.

3. Environmental Corporate Responsibility

CalPERS and CalSTRS should use their significant public equity holdings of a combined $170 billion to encourage environmentally responsible corporate behavior in two principal areas:

• Environmental Disclosure. Encourage consistent, meaningful reporting of environmental practices, risks and potential liabilities, including climate risk assessment and global warming. Work with the SEC to strengthen environmental disclosure rules.


• Greening Business Operations. Use dialogue, shareholder resolutions, investor outreach, and other actions to encourage companies to improve the net environmental impacts of their operations and to reduce their environmental risks and liabilities.

4. Environmentally Sustainable Real Estate Portfolios

CalPERS and CalSTRS should conduct a comprehensive audit of their real estate investment portfolios "to determine whether the investments are maximizing their opportunities to use clean energy, energy efficiency and green building standards and practices that reduce long-term costs and boost long-term value." Implicit in this recommendation is that the funds' current and prospective real estate managers will ultimately be evaluated on this basis. CalPERS and CalSTRS combined own nearly 160 million square feet of office and industrial space and other real estate in more than 20 countries, valued at an aggregate $16 billion.