The nation’s largest public employee pension fund, the California Public Employees’ Retirement System (CalPERS), Monday agreed to pursue part of a so-called “Green Wave” environmental investment initiative by seeking to reduce by 20% over the next five years the energy use in the pension fund’s $7.9 billion investment in 144 million square feet of real estate holdings.

A possible future gubernatorial hopeful, State Treasurer Phil Angelides, a CalPERS board member, proposed the environmental investment push earlier this year.

Angelides estimated that it will take a $142 million investment in energy efficiency retrofits by CalPERS, with the payback coming at about $29 million annually in energy savings over a five-year period.

As he has maintained with other parts of the initiative, Angelides said the energy efficiency initiative is aimed at achieving stronger returns for the state pension funds, and he has argued that the funds will, in fact, “see financial gains with the added benefits of lower energy consumption, cleaner environment, and more jobs.”

The economic drivers for Angelides’ clean energy push have been both CalPERS and the California State Teachers’ Retirement Systems (CalSTRS), which combined hold $16 billion in 200 million square feet of real estate holdings. As state treasurer, Angelides sits on the boards of both funds, where he has been advocating investment strategies that carry environmental and economic benefits.

Angelides’ self-proclaimed “Green Wave Initiative” attempts to direct the state’s two multi-billion-dollar public employee pension funds to make further investments in renewables, energy efficiency and environmentally clean technology development, with the carrot being the prospect of the two funds reaping millions of dollars more in annual returns. Pension fund board meetings were held this fall to explore Angelides’ push, which was introduced last February.

Noting that CalPERS has the financial and real estate holding breadth to exert influence, Angelides predicted the action Monday will raise the bar for energy efficiency in the real estate marketplace. CalPERS now will launch a “focused effort to achieve the 20% energy reduction,” he said. “Working with its real estate partners, CalPERS will assess the current energy use of the properties it owns, identify buildings where investments in energy efficiency can yield positive returns, and design retrofit programs to capture those energy and cost savings.”

Earlier in the year, the state treasurer estimated that CalPERS and CalSTRS collectively could invest up to $200 million in retrofit equipment and efficiency measures in what he called the funds’ “core real estate portfolios” to meet a new 20% energy reduction goal. That level of investment would reap a $40 million annual energy cost-savings, he said, offering a five-year payback to the pension funds. It would also provide an internal rate of return of 14% annually over ten years, Angelides calculated.

This effort is part of the initiative that the treasurer launched last February with what he called four prongs:

Both pension funds at Angelides’ urging earlier this year committed a combined $450 million to private equity investment in cutting-edge environmental technology and renewable energy. In addition, CalPERS board also approved investing $500 million in environmentally screened stock funds that have a track record of meeting or exceeding returns of the fund’s existing stock managers.

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