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April 14, 2005
Vermont Issues Call to Investment Managers for Environmentally Sustainable Portfolio
by William Baue
Request for Information asks investment managers about their positive and negative screening
practices as well as financial performance, particularly of environmentally sustainable portfolios.
SocialFunds.com --
Earlier this week, New England Pension Consultants (NEPC) issued a Request for Information (RFI) from investment managers who specialize
in environmental sustainability strategies at the behest of Vermont Treasurer Jeb Spaulding. The Vermont State
Retirement System (VSRS) and Vermont State Teachers'
Retirement System (VSTRS) are pursuing plans to
screen a portfolio by environmental criteria.
 "This RFI results from a request from me to
the trustees of the two systems to consider an allocation to environmentally sound investment
management strategies by conducting an RFP [Request for Proposals] for an environmentally managed
US large-cap or Global mandate," Treasurer Spaulding told SocialFunds.com.
Treasurer
Spaulding administers investment policies and strategies adopted by the Boards of Trustees for
Vermont state pensions, which have combined assets of over $2.4 billion.
"The objective
of this initiative is to reduce environmental and associated financial risk to our portfolios, to
enhance long-term investment returns, and to encourage environmentally responsible corporate
management," he continued. "We plan to review the responses to the RFI and invite selected vendors
to submit formal proposals."
Treasurer Spaulding follows in the footsteps of California Treasurer Phil Angelides, who in
early 2004 proposed the Green Wave initiative that the
California Public Employees Retirement System (CalPERS--the largest US pension fund at $183 billion in
assets) recently implemented. One prong of this four-pronged program calls for applying
environmental screens on a $500 million portfolio. Maine Treasurer David Lemoine is also a
step or two ahead of Vermont, having selected Light Green Advisors as investment manager to apply
best-in-class environmental screening to a portfolio consisting of two percent of the Maine Trust
Funds.
Treasurer Spaulding remains agnostic as to whether he prefers exclusionary screens
that eliminate sectors from consideration, best-in-class screens that reward best practice across
all sectors, or weighting strategies that tilt holding concentrations toward better-rated
companies.
"As far as screens, we are open to considering any of these strategies, and
will make a determination based on the responses to RFI and RFP process," he said.
The RFI
asks for detailed information on investment managers' experience in environmental screening. For
example, it inquires whether managers apply positive, negative, or no screens in 11 areas,
including corporate accountability, fossil fuels, and pollution. It breaks these categories
further into subcategories such as sustainable development and urban sprawl under land management.
The potential size of the portfolio also remains to be determined.
"The
background information I provided to the boards referred to up to 3 percent of the total large-cap
allocation--approximately $20 million--but, again, no decision will be made about whether to
actually select and fund a manager or managers until review of proposals is complete," he stated.
Selection criteria will of course include financial performance, as the RFI asks for
quarterly performance returns compared to the relevant benchmark (S&P 500 or MSCI World) as well as
information on how environmental screens have impacted performance over time. Treasurer Spaulding
also intends to compare financial performance to the median manager in their peer group universe.
Investment managers have until May 6, 2005 to submit information to NEPC.
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