State Street makes first carbon offset investment with Chinese hydro deal

Custody giant executes deal internally

Custody and asset management giant State Street has made its first ever investment in carbon offsets via an internally executed Chinese renewable energy credit (REC) deal – and says it is looking at further global opportunities.

“Representing a significant achievement in 2011, State Street developed and executed a global REC and carbon offset strategy, investing in a Chinese run-of-river project,” the Boston-based group said.

“This signified the first time we invested in a carbon offset project.”

The bank, which has $22.4trn (€18trn) in assets under custody and administration and $1.9trn under management, added it is now exploring “additional geographic opportunities” for REC and carbon offset investment. It says in its new corporate responsibility report: “We will be investigating on-site renewable energy generation opportunities within our portfolio.”

Its asset management arm, State Street Global Advisors (SSGA), now has $108bn in assets under management which incorporate environmental, social and governance (ESG) factors as at the end of 2011. This is down 9% from $118bn at the end of 2010. ESG assets now account for nearly 6% of total assets under management – though the number of accounts incorporating ESG strategies has fallen by 6% to around 150.The group plans to conduct a stakeholder engagement workshop following the publication of the report, facilitated by sustainability advocacy group Ceres.

Last year SSGA launched its High Quality Green Bond strategy and also introduced a Sustainable European Corporate Credit fixed-income strategy, giving exposure to companies via negative and positive screens.

Forty-eight client accounts underwent human rights screening.

The report also says the bank is involved in the “project Delphi” venture which unites asset managers, asset owners, consultants and academics to create a set of ESG “super factors”.

And State Street will continue to explore “high potential” product opportunities such as social impact bonds, and carbon trading/servicing.

The report notes that Australian superfunds are “driving the trend” by increasingly incorporating ESG factors into their portfolios. Indeed, its active equity teams in Australia and elsewhere have begun adding ESG factors into some existing quantitative models – which the bank says indicated that ESG investing is “becoming more mainstream”.

It added: “Our Global Enhanced Equity team has also added an ESG risk overlay to the investment process for global, regional, UK and emerging market portfolios.”