CalSTRS’ sustainability mandate with Generation IM outperforms benchmark by 5.6%

Five-year-old mandate grows to $343m

A sustainability-focused mandate that the $155.5bn (€120.3bn) California State Teachers’ Retirement System (CalSTRS) awarded Al Gore’s Generation Investment Management in 2007 has exceeded its benchmark by an annualized 5.63% since inception, according to figures from the fund.

The portfolio has now grown to $343.7m and has returned an annualized 2.52% – compared to a -3.11% return for its MSCI World ex-Tobacco benchmark.

Generation has the largest mandate in the California pension giant’s global equity sustainable investment programme that was begun five years ago with an initial commitment of $250m. The programme’s assets have since grown to $646m.

The other managers in the scheme are New Amsterdam Partners (assets: $74.5m; excess return: 0.19%); Light Green Advisors ($56.3m; 1.83%); and Acuity Investment Management ($171.4m; -1.19%).

Overall the programme has returned 1.2% above benchmark for its US portfolio and 2.9% above benchmark for its non-US portfolio.

The figures come in the latest annual report of CalSTRS’ Green Initiative Task Force (link) that was presented to the Teachers’ Retirement Board Investment Committee last week.
The task force was set up in 2007 “with the mission to address global sustainability issues and to identify,analyze and propose potential investment and risk control strategies related to climate change”.

Another key number to emerge from the report is that $11.6bn, or 25.7%, of the fund’s fixed income portfolio now meets sustainability criteria – up from the 21.5% disclosed in the group’s previous report.

During the 2011- 2012 fiscal year, CalSTRS considered 81 environmental proposals tabled at company annual general meetings. It supported 22 and voted against 59.

“The percentage of votes against is not representative of CalSTRS’ lack of concern on environmental issues,” it says. “Rather, this vote percentage reflects the fund’s desire to support proposals that staff believes will add value to the investment.” It said many of the proposals lacked shareholder value or involved the day-to-day management of the company concerned.

For the 2012-2013 proxy-voting season, the Corporate Governance unit under Anne Sheehan has identified 129 companies for engagement. “The list consists of five companies targeted for diversity, 23 companies targeted for environmental sustainability, and 101 companies targeted for majority voting,” Sheehan said in a note that was also presented at the meeting.

The fund expects only a couple of the diversity and sustainability proposals to go to a vote and 10-15 of the majority voting proposals to go to a vote.