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September 21, 2006
Pennsylvania Treasurer Keys into Clean Tech Investing and Green Screens
by Bill Baue
Keystone Green Investment Strategy commits state to $40 million in green private investments, $50
million shifted to managers investing in clean tech, and environmental screening.
SocialFunds.com --
Last week Pennsylvania Treasurer Bob Casey
announced the launch of the Keystone Green Investment Strategy, a
four-pronged commitment to environmental finance. The state will launch the Keystone Green Fund,
allocating $40 million to private equity, venture capital, and project financing in clean
technology. Another $50 million will be reallocated to managers with strong clean tech investing
records. The Treasurer, who has discretionary authority over $12 billion in state funds and is the
custodian of $105 billion altogether, is developing green screens for assessing companies'
exposures to environmental liabilities. And finally, the state is joining the Investor Network on
Climate Risk (INCR), a coalition of over 50
institutional investors managing over $3 trillion in assets, which issued a 10-point Call to Action last year including
the first intention of investing $1 billion collectively in clean tech.
 "Treasurer Casey is demonstrating prudent,
smart leadership by joining forces with dozens of other investors to better understand the
financial risks and investment opportunities from climate change," said Mindy Lubber, director of
INCR and president of Ceres, the network's
secretariat.
Pennsylvania's move follows the precedent set by California Treasurer Phil Angelides, who jumpstarted the
first point INCR's Call to Action by securing investment of $888 million in clean tech private
equity and environmentally screened funds through the Green Wave initiative. Pennsylvania
leapfrogged over INCR members Vermont and Maine, whose green investing programs are both currently
on hold. After Vermont Treasurer Jeb
Spaulding issued a request for information (RFI) on environmentally screened US or global
portfolios last year for the state's two retirement funds, they merged, stalling forward momentum
for the time being. Maine is waiting for Light Green Advisors to populate a green fund, according to
Deputy Treasurer
Barbara Raths.
"Treasurer Casey's strategy looks like a very comprehensive approach to
green investing, covering both private equity and public equity," Vermont Treasurer Jeb Spaulding
told SocialFunds.com. "And he's participating in INCR, which means he'll be trying to leverage all
state investments in publicly traded corporations to make sure they're taking climate risk
seriously."
Two other INCR members that have committed to green investing. The New York State Common Retirement Fund
has made a $30 million commitment to the Carlyle/Riverstone Renewable Energy Infrastructure Fund I,
and the Oregon Investment Fund
approved investments in First Reserve XI, which has extensive alternative energy technology holdings,
and Nth Power, a clean energy capital
venture fund that is backing more than a dozen alternative energy companies. The Keystone Green
Investment Strategies commitments put INCR over its goal of $1 billion in green investments.
The Keystone Green Investment Strategy does not specifically address using proxy voting or
shareowner engagement to address environmental and climate-related issues, the second point of the
INCR Call to Action. The report on the strategy states that the Pennsylvania "Treasury Department
does not necessarily endorse every position taken by INCR," so it is unclear whether the strategy
will encompass active proxy voting or shareowner activism on environmental issues. Treasury
spokesperson Karen Walsh did not respond to SocialFunds.com's requests for commentary.
Treasurer Casey is currently Pennsylvania's Democratic candidate in the upcoming election for US Senate, so it
is also unclear how a victory for him might impact the future of the green strategy.
The history of the Keystone Green Investment Strategy dates back to last year, when Treasurer
Casey asked the Pennsylvania Environmental Council (PEC) to conduct a series of stakeholder
meetings with finance experts and nonprofits to discuss state investment in clean tech. The
stakeholders concluded that green investing could fulfill triple bottom line objectives of
sustaining strong returns, creating good jobs in the state, and improving the environment.
For the Keystone Green Fund (KGF), the Treasury is partnering with several of the state's
sustainable energy funds, which were established in response to a 1998 Pennsylvania Public Utility
Commission restructuring order to provide financial support for renewable and clean energy. The West Penn Power, First Energy, and Reinvestment Fund Sustainable Energy Funds have signed
letters of intent to co-invest at least $5 million in the KGF.
The Keystone Green Fund
will pursue two separate but coordinated strategies: KGF-PA, which will direct at least $15 million
into Pennsylvania-based clean tech firms, and KGF-US, which will invest $25 million in clean tech
companies nationally.
Interestingly the Keystone Green Investment Strategy will use the
broadest definition of clean tech as new technologies that are "more efficient and less polluting."
"Energy conservation, clean coal, and coal gasification technologies are three examples of
technologies that fall under this broad definition of 'Clean Technology' but might be excluded by a
narrower focus on alternative and renewable energy technologies," states the report in a footnote.
For the $50 million reallocation, the report does not list the specific criteria that will
be used to determine which investment managers will have assets taken from them, and which will
have assets directed to them. And the report states that the "Treasury Department will develop one
or more written screens, or sets of considerations and factors," but it does not specify what kinds
of green screens will be employed--exclusionary screens, positive screens, best-in-class screens or
some combination.
"These considerations and factors will identify areas of possible risk
or exposure that publicly traded companies might face from such developments as direct carbon
regulatory schemes, indirect regulatory approaches (such as taxes on fuel, or on fuel consumption),
imbalances in global energy demand and supply, climate change and attendant consequences, and other
similar concerns," the report states. "The Treasury Department will also develop metrics to
evaluate the impact of the screens on investment manager portfolios, and on the performance of
those portfolios."
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