Have you ever wondered what the $40 billion or so that the B.C. government has in pension holdings for teachers, hospital workers and government employees is invested in? You should go to http://www.pensionsbc.ca and look. It might surprise you to learn that the money is not invested in a way that will make our province stronger or a better place to live.
This is even more apparent when you look at the State of California and its Green Wave initiative. It calls on the state’s two large public pension funds – the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) – to bridge finance and capital markets with public purpose by committing $1.5 billion to investments in cutting-edge technologies and environmentally responsible companies. The goal of the initiative (treasurer.ca.gov/news/greenwave.htm) is to improve long-term financial returns for pensioners and taxpayers through investments in the environmental technology sector, while also reducing the risks to the pension funds posed by corporate environmental liabilities.
The investment is important to companies creating technology that cleans up water and air, or creates energy from the ocean. Typically these green technologies cannot attract venture capital. For example, start-ups in wastewater management or ocean energy production require a major investment in infrastructure – which VCs do not invest in. The exit strategy also does not match a VC profile, which usually includes either an acquisition or IPO.
However don’t look to government or utility to fund an ocean energy project, because there is simply too much risk. Which makes the Green Wave initiative all that much better of a match with the environmental sector.
Under the Green Wave initiative, investors’ holdings in their state’s real estate portfolios are also going to be upgraded to be more energy efficient. This has three effects. It drives up the value of the portfolio, which is good for the pension fund members. It also reduces the amount of energy used in the buildings, which in turn is good for Californian air quality. Conveniently, it also creates a market for the technologies that the funds are investing in.
Of course, there are arguments against investing in green technology, or what is also know as “socially responsible” investing. They are mostly based on the perception that the returns are absent or too small, which really is not the case, because most of the socially invested indices have outperformed the standard indices in recent year. From September 2002 to September 2003, the Dow Jones Sustainability World Indexes (http://www.sustainability-indexes.com) increased by 23.1 per cent, compared with the Dow Jones World Index, which registered a slightly smaller gain of 22.7 per cent in the same period.
The Green Wave initiative, combined with the strict emission policies and high energy costs in California, is creating a home-grown market for nearly all the technology that the ex-Internet entrepreneurs can dream up. The state, through its initiatives, is buying hybrid buses, creating markets for solar roofing material, electric vehicles and wind turbines.
Imagine if Pensions BC were to undertake a similar initiative here. It would help create a world-class environmental technology industry and improve the quality of life in B.C. (cleaner air and water).
Improving the quality of life and creating a world-class environmental industry will attract new entrepreneurs looking to invest in the next wave of technology. All leading to B.C. continuing to be the best place to live.
Of course we just need to get the pension fund people to see it that way, no small task but something worth pursuing.
Reprinted from Business in Vancouver, August 2004