Norway channels billions into cleantech

Norwegian officials have announced they aim to invest NOK 20bn ($3.1 billion) of their government pension fund in clean technology over the next five years, becoming the latest in a number of governments putting strategic funds to work in this sector.

The infusion is to target investments “that can yield indisputable benefits,” including clean energy, improving energy efficiency, carbon capture and storage, water technology and management of waste and pollution.

Projects promoting sustainable growth in emerging economies will receive special attention, according to Minister of Finance Kristin Halvorsen.

Halvorsen also said the plan will include the initiation of a broad climate-change study in relation to financial markets.

“In the same way as the Stern Review provided important knowledge about the impact of climate change on the general economic development globally, work of a similar nature might shed light on the effect on financial markets more specifically,” Halvorsen said.

Proposed by the Ministry of Finance to the Parliament, the environmental investment program is among the latest of a series of changes to investment criterion to the $300 billion pension fund, formerly named the Petroleum Fund of Norway. Despite its current name, it derives its financial backing from oil profits, not pension contributions, and is one of the largest such funds in the world.

Other measures include the exclusion of tobacco-producing companies, a watch list of companies in the “grey zone” and detailed investor expectations on company’s corporate governance and approach to environmental issues such as climate change.

These changes come following last year’s big surprise to investor circles that management had scrutinized 500 companies for signs of “unethical practices”.

Although the Norway pension fund isn't directly investing retirees' money per se, despite its name, other countries and regions have done so.

The California Public Employees’ Retirement System (CalPERS) manages a $175.1 B portfolio and began carving out a slice of it for environmental investing back in 2004.

“We’re a long term investor so we need to look beyond the next quarter. The idea is we want to be on the cutting edge of what’s happening,” said CalPERS spokesman Clark McKinley to the Cleantech Group. “It’s clear there are non-renewable resources like oil. It’s prudent to look into alternative energy such as biofuel, solar and tidal.”

Since CalPERS’ initial $200 million investment five years ago, it has invested just over $1 billion total in funds that support clean technology companies. CalPERS also uses environmental screen index funds to filter out companies that have harmful environmental practices.

Despite what he called CalPERS long term commitment to clean technology, McKinley was somewhat bearish on near-term future commitments.

“We haven’t been making a large number of new commitments in private equity portfolios because of the market situation. There’s a lot of money still on the sidelines,” he said. “Until investors see how these programs shake down, it doesn’t make sense.”

Indeed, at 14 percent of its investment portfolio in private equity, CalPERS is already above its 10 percent target.

Other pension funds, notably California State Teachers Retirement Systems with a $188 milion investment, have also tagged a portion of their portfolio for green investing. (see Cleantech to reach $17B).

The New York State Retirement Fund has committed $30 million to the Carlyle/Riverstone Renewable Energy Infrastructure Fund I, which has raised $600 million to invest in projects such as hydroelectric plants, wind systems, geothermal, and biomass facilities. The state treasurer's office in Oregon meanwhile approved $50 million in 2006 from the Oregon Investment Fund to invest in the First Reserve XI and Nth Power funds.

Since that initial push by pension funds several years ago, there has been something of a lull in activity.

Some spokespeople, like McKinley, say there simply isn’t room for more capital until venture capitalists are comfortable investing again and markets normalize.

Other industry players, like the Ontario Teacher Pension Plan which manages CAD $87.4 B (USD $70.5 B), say it’s inappropriate to make investment decisions on anything other than the bottom line.

“We’re precluded from making decisions based on anything other than financial returns,” said Deborah Allan, director of communications for the Ontario Teacher Pension Plan, to the Cleantech Group. “If it were a good investment and it met our return requirements then it’s something we would do.”

Norway’s proposal for the environmental fund came in the form of a report to the Storting, the Norwegian Parliament, on the 'Management of the Government Pension Fund in 2008.’ The Ministry highlighted the investment strategy of the fund, including proposals for "further evolvement," and a review of whether active management of the fund should be continued – with a new external review which is expected to form the basis of a broad assessment in spring 2010.

It also revealed the results of the evaluation of the ethical guidelines, which have produced a “more active and more cohesive perspective on the ethical management”, as the Ministry confirmed it is signing up to the UN Principles of Responsible Investment (UN PRI).

Those principles require the pension fund to strengthen its responsible ownership strategy through better integrating environmental and social aspects and good corporate governance.