When it comes to the environment, institutional investors have gone to accentuating the positive from focusing on the negative.
While investors have been passively screening out companies with a poor green track record for years, some are ready to be more proactive with their climate change portfolios by investing in companies that have a positive environmental footprint.
Most of the flows into proactive environmental strategies generally have come from retail investors, but institutional investors see the approach as a better risk management tool along with the environmental benefits, industry watchers said.
Staff at the $232.1 billion California Public Employees' Retirement System, Sacramento, is planning in the coming year to revamp its $493.9 million environmental portfolio, which currently screens out the worst polluting companies in their environmental managers' respective benchmarks, to actively seek out cleaner companies.
The $153.9 billion New York State Common Retirement Fund, Albany, in April created a $500 million portfolio that would target environmental activity companies. Staff will evaluate companies within their current portfolios or they might hire external managers to provide an equivalent strategy, said Jim Fuchs, spokesman for the pension fund.
And managers are responding. HSBC Global Asset Management Ltd., London, and global equity manager RCM of San Francisco, both plan to develop strategies that invest in public companies that take steps toward reversing or curtailing climate change.
Also, index provider FTSE Group, London, is rolling out a suite of environmental technology indexes that tracks companies that derive a certain percentage of their business from environmental activities.
Climate change and the high price of oil are two of the most important factors affecting the global economy, said Winston Hickox, chairman of the FTSE Environmental Technology Advisory Committee and a partner at California Strategies LLC, Sacramento, a government affairs consulting firm.
“These "externalities' will make winners and losers of countries, companies, and importantly investors,” said Mr. Hickox. “The need has become clearer with every passing year that investors need to better understand the implications of these forces in the global economy with regard to the assets held in their portfolios — particularly institutional investors with long-term investment horizons.”
Other industry watchers have seen this growing awareness come into play.