CalSTRS Green Bond Program Enters Its Seventh Year
CalSTRS Fixed Income is a leader in the green bond market, more than tripling its holdings over the past two years
WEST SACRAMENTO, Calif. – Seven years after initiating its green bonds program, the California State Teachers’ Retirement System is poised for continued portfolio growth and holdings expansion, as reflected in the 10th annual Green Initiatives Task Force Report released yesterday.
Globally, 2015 was a record year for green bond issuance at more than $42 billion, with the possibility of reaching $100 billion before 2016 is recorded in the books, according to the task force report. As of October 19, 2016, CalSTRS’ green bonds holdings totaled $310.5 million—more than three times its holdings two years prior.
The growth in green bonds at CalSTRS aligns with the commitment that Chief Executive Officer Jack Ehnes made during the 2014 United Nations Climate Summit. At that time, Mr. Ehnes announced CalSTRS would more than double its clean energy and technology investments from $1.4 billion to $3.7 billion over the next five years. Green bonds have played a significant part.
“Organizations issue green bonds because they have projects to fund that have environmental and economic benefits.”
CalSTRS Investment Officer
“We like green bonds because they offer competitive investment-grade and high-yield returns that fit in well with our Fixed Income Portfolio,” said CalSTRS Investment Officer Cathy DiSalvo, who manages the green bonds program. “Organizations issue green bonds because they have projects to fund that have both environmental and economic benefits.”
The green bonds investment vehicle has taken off with supranational institutions, such as the World Bank and IFC, as well as with various multinational commercial banks such as Bank of America and Morgan Stanley.
“This past August, CalSTRS purchased $5 million in green bonds from the Asian Development Bank, making us one of about 70 investors in the bank’s $1.3 billion issuance,” Ms. DiSalvo said.
Green bonds have continued to grow globally, according to the Climate Bonds Initiative, in its latest analysis, Bonds and Climate Change: The State of the Market in 2016. The Climate Bonds Initiative estimates there are $694 billion worth of climate-aligned bonds outstanding, an increase of $96 billion from last year’s report.
As CalSTRS has incrementally grown its green bond program, which held just $52 million four years ago, two attractive features of the green bond market emerged. These features include price stability due to the fact that the bonds are traded less frequently than standard bonds because they are purchased mostly by buy and hold investors. They also offer increased reporting to track the progress of projects the bonds finance.
In 2016, projects funded by CalSTRS green bond purchases included:
- Renewable energy—from Export-Import Bank of Korea, Georgia Power, Westar Energy, the European Investment Bank, and Morgan Stanley.
- Climate change mitigation and adaption—from the African Development Bank, Export Development Canada, Kommuninvest (Sweden), and Nederlandse Waterschapsbank (The Netherlands).
- Public transportation and waste management—from European Bank for Reconstruction and Development, and ING Bank.
- Hybrid/electric vehicles—Toyota Motor Corp.
The California State Teachers’ Retirement System, with a portfolio valued at $192.2 billion as of October 31, 2016, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s 896,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts.
See how CalSTRS demonstrates its strong commitment to long-term corporate sustainability principles in its annual Global Reporting Initiative sustainability report: Fostering a Secure Future.