CALPERS - A Small Bet on Big Trees 2008

Calpers: A Small Bet on Big Trees
Posted by Keith Johnson
Calpers, the big public pension fund, has decided that mounting concern about climate change is making trees a better investment.
The next big thing? (Wikipedia)
The California Public Employees’ Retirement System has long been a gadfly for environmental causes, bugging big companies to come clean about their greenhouse gas emissions and exposure to climate-change risk. This week, it said it would juggle its portfolio to put about $2.5 billion more into forest management.
The $253 billion pension fund sees two ways to make money from the move. Forests yield biomass, an increasingly popular fuel source. And because forests store carbon dioxide, keeping them intact is like cutting CO2 emissions elsewhere–which is starting to have an economic payback.
“It’ll take some time for the value (of forests) to be properly assessed, but we anticipate it will be very large for decades to come,” says Russell Reads, Calpers’ chief investment officer. “We want to be the early movers with a new perspective of how to invest here.”
Planting new trees has been in the climate-change arsenal for years. Now, especially after last December’s climate-change confab in Bali, there’s talk that protecting existing trees could yield carbon revenue too. The tricky part has been just how to put a dollar sign on the trees.
That got easier, in the U.S. at least, with the approval last fall of California’s Forest Protocols, which set up standards for sustainable forest management. Slowly, other investors, such as Merrill Lynch, also are seeing green in the trees.
Calpers’ heightened interest in forest comes amidst a wider shuffling of its portfolio to put more money–5% of its total–into assets that are linked to inflation. Like many big investors worried about rising prices and stagflation, Calpers is trying to guarantee minimum returns–especially given that its pension payouts are indexed to inflation.
Calpers’ bet is that the carbon market will make trees a more-lucrative long-term investment. But it’s hardly putting all its eggs into the speculative woody basket. This week’s forestry investment still amounts to just 1% of the pension fund’s assets.