Pension Panel Rejects Fossil Fuel Divestment

Jul 28, 2015

The panel that oversees Vermont’s $4 billion pension fund rejected a proposal Tuesday to sell off its shares in oil and coal companies. But proponents of fossil fuel divestment say it’s past time for the state to sever financial ties with the industries they blame for climate change.

About three dozen climate change activists showed up outside the Pavilion Building in Montpelier Tuesday morning. They sang quietly as they marched down a sidewalk and into the auditorium, where the Vermont Pension Investment Committee was contemplating the future of a $4 billion portfolio.

The committee hasn’t historically drawn huge crowds. But the emergence of fossil fuel divestment as a key strategy for climate change activists has focused new attention on the seven-person panel that oversees pension funds for retired state workers, teachers and municipal workers.

Tuesday’s meeting marked the third time in two years that members of VPIC have formally considered unloading its shares in fossil fuel industries. Despite growing pressure from groups like 350.org and the Sierra Club, the committee again voted unanimously to reject the proposal.

“The evidence that I’ve seen to date tells me that there is a loss to the fund, it’s substantial. And as a fiduciary, I’m compelled to recommend against divestment,” says State Treasurer Beth Pearce.

Pearce is a member of the Pension Investment Committee, and the statewide politician on whom climate change activists are focusing their advocacy efforts.

Pearce says she thinks climate change is real, and that it poses an existential threat to Vermonters’ futures. But she says divestment would cost the fund an estimated $9 million in foregone returns annually.

“My first and foremost responsibility is to the 48,000 members, the beneficiaries of the system,” Pearce says.

Eric Becker was among the activists pushing for divestment Tuesday. He’s also the chief investment officer at Clean Yield Asset Management, an investment firm in Norwich that offers environmentally responsible portfolios to its clients.

Becker says the analyses on which Pearce’s office has based its projections are deeply flawed, since they rely on the past financial performance of fossil fuel companies shares.

“This is a terrible no-no in the world of CFAs and fiduciaries,” Becker says. “Historical returns can tell you a lot about the past, but little about the future.”

Several high-profile institutions have gone the divestment route, including Syracuse University, which in April decided it will no longer invest any of its nearly $1.2 billion endowment in fossil fuel industries.

Locally, Sterling College, Green Mountain College and Goddard College have all decided to divest. Ed Stanak, a longtime state employee whose pension is under management by VPIC, says that so long as the state stays vested in oil companies, it risks serious downside exposure to what he says is a fossil fuel bubble.

“It is expanding,” Stanak says. “And it’s just a matter of time of when it bursts.”

"My first and foremost responsibility is to the 48,000 members, the beneficiaries of the system," - Beth Pearce, State Treasurer

Even putting aside the issue of economics, Pearce says Vermont wields more influence over the fossil fuel industry as a shareholder. This past May, at a meeting of Exxon-Mobile shareholders in Dallas, she offered a resolution directing the company to strengthen emission standards.

The resolution failed by an overwhelming margin. But Pearce says efforts at other companies have been more successful, and that the state’s influence over corporate governance disappears altogether if Vermont sells off its shares.

“I believe that stepping away from the table, selling your shares, actually dilutes the dialogue with the companies,” Pearce says.

While Pearce promotes activism from within, divestment proponents say ownership of those shares makes Vermont complicit in the fossil fuel extraction the money funds. Catherine Lowther is a professor at Goddard College, and a member of the panel that oversaw its divestment process.

By purchasing shares in Exxon-Mobile, for example, she says Vermont “is saying I will loan you some money, and you go off and drill some more wells and create some more equipment and get some more oil out of the ground and burn it and put some more carbon in the atmosphere.”

The vote by the Vermont Pension Investment Committee Tuesday found that fossil divestment generally doesn’t comply, in whole or in part, with the so-called “Environmental, Social and Governance” policies that govern the committee’s actions.

Karen Paul, a committee member who wasn’t present for the vote, said that if divestment runs afoul of existing VPIC policies, then perhaps the committee needs to revise them. Paul said she had hoped to have a debate over the merits of divestment from coal companies exclusively, a path chosen earlier this year by the Global Pension Fund of Norway. The presentation prepared by Pearce’s staff, she said, missed the mark by using an unnecessarily broad definition of what divestment might mean.

Paul said an “incremental” approach to divestment is likely the best course for the state. In the same way that divestment helped undermine the apartheid government in South Africa 1980s, Paul said it has the potential to be useful tool in combatting climate change.

“If there had never been a discussion about divestment, we’d all be sitting here with investments in a very different South Africa,” Paul said.

Pearce says her office stands ready to aid in the battle against climate change, through means other than divestment. In a “Sustainability Report” issued in April, Pearce outlined a plan of action that included joining with five other states to ask the Securities and Exchange Commissioner to strengthen disclosure requirements, and pushing the oil company BP to disclose a corporate strategy for a “low carbon transition.”

"If there had never been a discussion about divestment, we'd all be sitting here with investments in a very different South Africa." - Karen Paul, VPIC member

“I want to be able to address the issues of climate change and retirement security at the same time,” Pearce says. “I do not believe that they are mutually exclusive.”

Maeve McBride, coordinator of 350Vermont, an organization that works at the state level on climate change issues, says she’s confident it’s only a matter of time before policymakers like Pearce will come to understand the wisdom of divestment.

“Divestment … is a way to send a strong signal out into the economic world, out into the political world, that we can no longer have these companies like Exxon-Mobile in control of our economic and political system,” McBride says.

Correction 9:53 a.m. 7/29/15 This post has been updated to correctly identify the group that helped organize Tuesday's event.