CalSTRS Expands ESG Program, Approves Seven New Money Managers

Firms eligible include Al Gore’s Generation Investment Management.

The Investment staff of the California State Teachers’ Retirement System (CalSTRS) has approved seven equity money managers who could receive a total of $1 billion for environmental, social, and governance-investment mandates.

But none of the managers have a lock on the money as the $225.3 billion pension plan expands its ESG program.

A CalSTRS press release says, “when the right investment opportunity presents itself, one or more of these managers are eligible to receive a commitment.”

Christopher Ailman, the chief investment officer of the West Sacramento, California-based pension plan, announced back in October 2016 that CalSTRS was expanding its approximate $1 billion ESG investment program. The system issued a formal solicitation for ESG managers with successful investment track records, attracting 20 applications.

CalSTRS already invests $767 million with one of the managers eligible for a new allocation, CalSTRS data shows. That is Generation Investment Management, the London ESG firm co-founded by former Vice President Al Gore, who also serves as its chairman.  

Generation invests in the stocks of companies globally that met sustainability standards for CalSTRS, but the pension plan is considering investing in a second ESG strategy with the firm, an Asia ESG strategy, the press release says.

Other firms selected as eligible for CalSTRS investments are Impax Asset Management Limited, which offers two investment strategies CalSTRS is considering, Impax Leaders and Impax Water. 

The firm says in its website that Impax Leaders invests in companies which “see more than 20% of their underlying revenue generated by sales of environmental products or services in the energy efficiency, renewable energy, water, waste, and sustainable food and agriculture markets.” Meanwhile, Impax Water invests in companies “that provide or operate technologies, infrastructure and services for the supply, management, and treatment of water for industrial, residential, utility, and agricultural users,” the website says.

The others chosen, CalSTRS says, are Brown Advisory LLC for its Large-Cap Sustainable Growth strategy, Schroder Investment Management North America for its International Equity strategy, and Nordea Investment Management North America Inc. for its emerging Stars Equity strategy, which the money manager says on its website invests in companies in emerging markets that meet sustainability standards.

Hermes Investment Management Limited was also chosen for a Global Emerging Markets ESG strategy, Candriam Luxembourg S.C.A. for a Sustainable World Equities strategy, and Rockefeller & Co., Inc. for a Global Sustainability and Impact Equity strategy.

Rockefeller & Co. traces its beginnings to its operation as a family office for the Rockefeller family, its website says.

In addition to its existing relationship with Generation, CalSTRS has another $284.9 million invested with AGF Investments, a firm that invests in the stock of companies that are considered environmental innovators or leaders.

The selection of the managers eligible for the ESG-focused expanded equity program comes as investment officials presented its annual “green” report at the system’s Investment Committee meeting on Wednesday.

CalSTRS, the second-largest pension plan in the US by asset size, surpassed only by its Sacramento neighbor the California Public Employees’ Retirement System (CalPERS), is one of the first US pension plans to consider ESG in its investments.

Part of CalSTRS’ ESG efforts is pushing its external equity managers to incorporate ESG considerations into its stock selections. The report notes that  in the fiscal year ending June 30, 2017, 66% of CalSTRS global ESG managers factored ESG criteria into their stock selection process compared to 56% a year earlier.

The report cities a key CalSTRS ESG initiative in 2017, the start of a $2.5 billion low-carbon index ESG strategy.

Not every CalSTRS initiative is resulting in larger ESG holdings. The CalSTRS ESG report noted that CalSTRS had $254.7 million in so-called green bond holdings in the fiscal year ending June 30, 2017.

The bonds that invest in environmentally sensitive projects amounted to $296.9 million as of June 30, 2016, shows CalSTRS’ prior green report.

CalSTRS spokesman Michael Sicilia told CIO that green bonds totals have been declining due to maturities, pay downs, etc. “We continue to be active buyers if the securities fit our portfolio needs,” he said.

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