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March 25, 2005
Shareowner Activists on Sustainability Take Baby Steps Into Sustainability Screening
by William Baue
Part one of this two-part article surveys the landscape of US public pension fund screening of
corporate social and environmental sustainability.
SocialFunds.com --
Amongst the most vocal proponents of corporate social and environmental sustainability in the US
are several public institutions with significant pension funds. Adopting socially responsible
investing (SRI) tactics, these institutional investors use shareowner activism to encourage more
responsible corporate behavior. One example is filing shareowner resolutions calling on companies
to address climate change. However, very few public pension funds are employing the other primary
defining SRI tools, namely positive screening that shows preference to more sustainable companies
and negative screening that excludes less sustainable companies from portfolios.
Part one of this two-part article looks at current
state of sustainability screening by US pension funds, and part two examines the
structural implications of pension fund screening.
The California Public Employees
Retirement System (CalPERS) is not only
the nation's largest public pension fund at $183 billion, but also the most active in
sustainability screening. The Green Wave initiative was formally
launched last month with the implementation of the fourth and final prong of the program that was
first proposed by California Treasurer
Phil Angelides in January 2004. One prong of the program calls for applying environmental screens
on a $500 million portfolio.
"The Green Wave is an excellent first step, and I really look
forward to seeing how it works, but every state should be doing a Green Wave," said Glynn
Washington, executive director of the Council for Responsible Public Investment (CRPI). CRPI has published a study entitled
Beyond CalPERS that finds very little SRI practice such as screening in California's county
pension funds.
"The support these institutional investors could provide for research on
corporate sustainability represents the best way to maximize their investments while at the same
time protecting and sustaining the environment from whence they came," Mr. Washington told
SocialFunds.com. "This work is certainly not being done with any alacrity."
At least two
states have started to follow behind the crest of the Green Wave initiative. The Vermont State
Employees' Retirement System (VSERS) and the Vermont State Teachers' Retirement System (VSTRS)
boards have approved a proposal set forth by Vermont Treasurer Jeb Spaulding to search for an investment
manager for an environmental fund.
"Such an investment manager would use positive screens
to identify and invest in companies that employ environmentally sound policies that add to their
bottom line, making these attractive opportunities," states the Treasurer's 2004 Annual
Report.
Before ending her eight-years as Maine State Treasurer due to term limits,
Dale McCormick proposed a "Two Percent Initiative" to apply environmental screens to that much of
the Maine Trust Funds.
"We have entered a memorandum of understanding with an
investor--Light Green Advisors--while it
assembles a mutual fund for best in class environmentally responsible investments," current Maine Treasurer David
Lemoine told SocialFunds.com. "We are currently waiting on the start-up of the fund."
The
Treasurers of California, Vermont and Maine are members of the Investor Network on Climate Risk (INCR), a coalition of 10 institutional investors
formed at the Institutional Investor
Summit on Climate Risk at the United Nations in November 2003. The summit was co-chaired by
one of the most vocal shareowner activists on the issue of climate change: Connecticut Treasurer Denise Nappier, the principal
fiduciary of the $20 billion Connecticut Retirement Plans and Trust Funds (CRPTF).
"We have two separate
operations--shareholder activism and pension fund management, which is the investment side," said
Don Kirshbaum of the Connecticut Treasurer's Office. "On the investment side, there is no
screening at all in any part of our portfolio, with the exception of one statutory screen which has to do the
MacBride Principles," a code of conduct for companies doing business in Northern Ireland.
"We discussed it with the treasurer a year or two ago--for example Steve Lydenberg of Domini Social Investments spoke to the investment
advisory council about the steps you have to go through to do different types of screens," Mr.
Kirshbaum told SocialFunds.com. "But the treasurer has not decided to do any screening at all on
the investment side."
As a fiduciary responsible for billions of dollars in investments,
making the decision to apply screens is no simple matter, as will be discussed in part two of this
article, which examines the structural implications of pension fund screening.
Part two of
this two-part article examines the opportunities and limitations that social and environmental
sustainability screens present to pension funds and other institutional investors.
©
SRI World Group, Inc. All Rights Reserved.
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