CALPERS RIDES THE CLEANTECH EXPRESS

The California Public Employees' Retirement System hasn't been shy about trumpeting its activities in the cleantech space. In 2004, the pension fund launched its Environmental Technology Programme, allocating $200 million to firms that invest in environmental technology solutions. In February CalPERS pledged an additional $400 million to a new private equity fund from Pacific Corporate Group in which it will be the anchor investor. The PCG cleantech fund will focus on energy, water and material technologies, and products and services that reduce carbon emissions, conserve natural resources and improve energy efficiency.

Areas of particular interest for CalPERS green investing have included alternative energy, water technologies, advanced materials or nanotechnology, air purification and transitional infrastructure.

The Environmental Technology Programme is now fully committed to seven investment partners, including: NGEN, a Santa-Barbara venture capital firm focusing on the new materials and cleantech sectors; Carlyle/Riverstone, a joint venture formed in 2000 between The Carlyle Group and Riverstone Holdings; DFJ Element, a cleantech partnership between Element Venture Partners and Draper Fisher Jurvetson; Rockport Capital Partners, focused on renewable materials and technologies; and VantagePoint Venture Partners, focused on technology and healthcare.

The programme's first investment came in May of 2005 with a commitment of up to $15 million to NGEN. The firm recently closed its second venture fund at $180 million.

Sacramento, California-based CalPERS isn't the only LP to be showing strong interest in the cleantech industry, but it has been eager to show thought leadership in the arena. Last month, CalPERS and the California State Teachers' Retirement System commissioned a report examining the economic effect of carbon emissions. The Electric Utilities Report found that, when taking the environmental impact of their carbon emissions into account, few of the world's electric power companies are creating overall economic value. The survey found that only six of the 25 companies analysed added value to the economy when taking environmental damage into account. The report made the argument that eventually these utilities will be made to pay for their disposal of gaseous waste, and that cost should be factored into their valuation.

The pension is also making efforts to be greener in its own offices. In December, CalPERS received the US Green Building Council LEED Gold Award for energy and environmental conservation measures in its Sacramento headquarters. Earlier last year CalPERS received the Flex Your Power award for its investment strategies aimed at encouraging energy efficiency.

Because the Environmental Technology Programme is relatively new, it remains to be seen whether it will generate real returns or just serve as good PR for a pension fund that is accountable to environmentally conscious California workers. CalPERS says that it expects returns in this sector to be commensurate with the risk-adjusted returns of the general private equity market. But having America's largest public pension fund go after cleantech so publicly will certainly be an encouraging sign for other LPs thinking about increasing their exposure to the sector.