Asset Selection And Portfolio Analysis Of Pension Funds In Green Investment

In order to solve the double threat of energy crisis and the climate deterioration, the world’s energy infrastructure requires a huge investment, and investors are faced with the choice of new investment. If we do not take action to mitigate climate and energy issues, the challenges ahead will be even more severe. With lower costs of clean energy technologies and the introduction of low-carbon policies, a new energy system is being gradually constructed. However, the current investment needs are huge. More institutional investors are needed to participate in green investment.Green investment refers to investment in low-carbon area and climate problem solving, including renewable energy, clean energy, environmental technology, climate change response and sustainable development-related aspects of investment projects and financing tools. Green investment will help reduce greenhouse gas emissions and air pollution.Green Investment Research internationally has been at a relatively deep level, including green investment and green GDP growth, investment in green finance green (sometimes called environmental finance) and product innovation theory, green investment financing, financing tools, mechanisms innovation and risk control. Pension funds and other institutional investors are gradually taking into account such factors as climate risk investment strategy, specific aspects of risk assessment mechanisms, risk control mechanisms are also being studied in depth.However, similar studies in our country are still in the initial stage. There are only a few scholarly articles on green investment. And research on pension funds participating in green investing is rare.The main foreign pension funds, including ATP (Denmark’s largest pension funds), PGGM (Netherlands medical industry) pension fund, the California teachers pension fund CalSTRS and the CalPERS (California Public sector funding) have dominated the trends that pension funds participated in green investment. Their interests include renewable energy technologies, renewable energy infrastructure, and clean energy technology. Meanwhile, in an effort to let more institution get interested in green investment, such as climate change institutional investor group (IIGCC), P8Group. Through studying on green investments to support further investment in the green investment, these organizations Increase the bargaining chips with the government.Through buying stocks, investing in industry funds, NSSF has participated in the green investment. By helping the wind power company Goldwind be listed, NSSF got excess returns. The NSSF also participated in green investment through the A-share market. NSSF invested a fund called China green low-carbon industry funds in2013. This fund focuses on regional projects of energy supply, high-tech enterprises with growth potential in the field of green, and urban construction projects in excellent green areas.Currently, the main form of green investment can be divided into debt securities, equity securities, mixed investment of debt and equity. In the carrier of financing, it can be divided into project financing and equity financing.In order to investigate whether green investment asset has an optimizing function on the portfolio, this paper makes an empirical study, with Markowitz portfolio theory and the VaR model. Markowitz theory is a classic and precedent portfolio theory, by quantifying the risks which gains access to the optimal portfolio. The VaR model is most widely used in financial institutions’risk analysis and risk management. Through comparative analysis, it found that adding green investment assets (green stocks) can optimize portfolio risk and return, while the VaR of optimized portfolio is also significantly lower than the VaR of original portfolio.In this paper, the result of the empirical process shows that by appropriately adding of green investment assets within the allowable range, the purpose of optimizing the portfolio risk and return can be achieved, and also the maximum loss the portfolio can be reduced when the risk incurred. Therefore, China should attach importance to the development of green investment.We should establish a core policy framework to stimulate and encourage private investment turning into green investments. Meanwhile, the green infrastructure can bring stable, and inflation-indexed yields that volatility is lower than traditional asset, which able to attract long-term institutional investors. The government should chose to vigorously promote green infrastructure to guide capital inflows into the area of green investment. Finally, in making investment decisions, the pension fund needs take the balance of long-term assets and liabilities into account, as well as meeting solvency requirements. For pension funds’ own regulatory measures, regulators and industry organizations can guide the pension funds’ decision-making behavior, to ensure the project’s sustainability and stability.