SACRAMENTO, Calif. — CalPERS' new forestlands policy goes well beyond trees.
It emphasizes investment in sustainable forests, both domestically and abroad. What's more, it allows the fund to invest in nascent carbon markets and in cellulosic ethanol, a type of biofuel developed from woodland products that is still in development.
“This new policy reflects some important substantive changes for healthy and sustainable management of forest systems and a new use of the products,” said Russell Read, chief investment officer at the $240.6 billion California Public Employees' Retirement System, Sacramento, in an interview. The policy is “an important fundamental shift in what really could be the oldest profession.”
CalPERS is not alone. The $53.7 billion Massachusetts Pension Reserves Investment Management Board, Boston, expects to issue a request for proposals March 3 to invest $1.1 billion in alternative energy sources, funded by the sale of half of the fund's timber assets late last year.
CalPERS officials plan to invest 1% of total assets, or about $2.4 billion, in timber assets. The allocation falls within a new 5% inflation-linked asset class that also includes investments in inflation-linked bonds, infrastructure and commodities.
Currently, CalPERS has more than $1 billion invested in timber. The fund has three timber managers: Hancock Timber Resource Group Inc., Boston; The Campbell Group LLC, Portland, Ore.; and Global Forest Partners LP, West Lebanon, N.H. In October, the fund committed $1.25 billion to the Crown Pine Timber/Campbell Opportunity Fund-A, which invests in 1.5 million acres in eastern Texas and western Louisiana, according to documents on CalPERS' website.
Exactly how much of the timber allocation will go toward the more non-traditional investments like biofuels is undecided. But board approval to invest in feedstock for biofuels and the burgeoning carbon credit markets give CalPERS a chance to cash in as these markets develop, Mr. Read said.
CalPERS officials want their timber managers to invest in sustainable forests, which are managed in a way that is sensitive to maintaining the soil quality, clean water, ecosystems and a host of other requirements.
The policy, adopted in February, requires that all forest investments receive an environmental certification, a sort of green seal of approval, said Louis Blumberg, director of the California forest and climate policy program at The Nature Conservancy, a conservation organization that worked with CalPERS in developing the policy.
Industry experts say CalPERS is likely the first U.S. pension fund to put such a heavy emphasis on environmental investing through a timber policy.
The new policy also allows for the buying and selling of carbon credits, a robust market in Europe but a relatively small one in the U.S.
But the U.S. market is poised for dramatic growth once a new president is in office, said Doug Cogan, director of climate change research at RiskMetrics Group Inc., New York.
Presidential candidates Sens. Barack Obama, Hillary Clinton and John McCain all support the development of a domestic emissions trading market.
When Mr. McCain, the only Republican to support emission trading became the apparent Republican presidential nominee after Super Tuesday on Feb. 5, trading volume on carbon credits soared on the Chicago Climate Exchange. According to data from Point Carbon, an Oslo-based energy consultant, 2.4 million tons traded Feb. 11, more than the average monthly volume traded on the CCX in 2007.
The prices of carbon financial instruments jumped to $4.50 after Super Tuesday, from about $2.75 in the days before, according to Point Carbon.
The U.S. carbon trading market was valued around $100 million at the end of 2007, Mr. Cogan said. That's just a small portion of the global carbon market, which Point Carbon valued at more $60 billion at year-end 2007.
While the U.S. did not sign the Kyoto Protocol, the international environmental treaty that sets carbon emission ceilings for different countries, the U.S. is expected to participate in the protocol's successor, the Bali Roadmap.
However, CalPERS will move ahead with or without domestic policy changes, Mr. Read said. “National policy will be important, but the forestland policy needs to make sense even without subsidies and the development of carbon markets,” Mr. Read said.