Matt Dunne: Climate change and fiscal prudence

Editor’s note: This commentary is by Matt Dunne, who was a candidate in the Democratic gubernatorial primary. He is a lifelong Vermonter and former state senator and former head of Community Affairs at Google. He lives with his family in Hartland.

[C]limate change was front and center during Vermont’s Democratic primary, and rightfully so. Vermont has already started to see the impacts of global warming and it threatens our identity — from our majestic winters to maple syrup. Historically, Vermont has provided a model for addressing these kinds of challenges, and we need to do so again. But climate change also requires us to take bold action to protect our financial future. That is why we must divest state assets from fossil fuels that are damaging our environment and fossil fuel companies that are clearly undertaking deceptive practices related to fossil fuels, thereby working at odds with our financial best interests.

Late last month, the Wall Street Journal broke the news that the Securities and Exchange Commission (SEC) is investigating whether ExxonMobil overvalued its oil reserves in the wake of low prices and regulatory actions curbing emissions. ExxonMobil has failed to reduce the stated value of its oil fields, despite the fact that many of its peers have done so. It seems the SEC is concerned the company may be shortchanging investors by overstating its potential future outlook. If the SEC is concerned, Vermonters should be, too.

The SEC investigation is just the latest in a series of major financial oversight actions. It comes on the heels of a lawsuit filed by a coalition of attorneys general from a wide variety of states pursuing ExxonMobil for damages related to the fact that they knew about about the impacts of fossil fuels on climate change decades ago and yet spent millions of dollars on campaigns to dispute the growing evidence from the scientific community. Last summer, clearly threatened by the lawsuit, the company made the unusual move of suing the attorneys general, claiming that the investigation was an attack on its free speech. This was oddly an acknowledgement that the company did know it was misrepresenting the facts to consumers and shareholders, something many of us would call fraud.

What can Vermont do to confront the fossil fuel industry and ensure our financial security in the future? As we did with the companies doing business with the countries of South Africa and Sudan, and sectors like tobacco that were knowingly deceptive to consumers, we can be activist investors and pull our pension funds from coal companies and ExxonMobil. I suggest we even go further and identify places where the state purchases oil-based products, request supply chain information, and move towards boycotting ExxonMobil products ranging from heating oil to the motor oil used on state vehicles.

We must take these divestment steps for our own financial security. What long-term fund manager would choose to buy stock in a product like coal, a product that nearly 200 countries have vowed to reject? The speculators base much of their valuation of fossil fuel companies on their reserve assets, or fuel sources that could be accessed in the future, and the infrastructure like pipelines that can move those fuels. If the impact of carbon on the planet continues to move global markets away from those fuel sources and price them accordingly, these assets would become stranded and greatly devalue those companies.

Similarly, ExxonMobil is so concerned about the Attorneys General lawsuit that it is counter suing, a fairly sure sign that company leaders are concerned these class action suits that could be worth billions of dollars of impact to ExxonMobil’s bottom line. Why on earth would we want to be invested in a company with that kind of liability hanging over its head?

We have already seen a steady decline in the value of coal companies. I made the decision to divest my family’s savings from fossil fuels back in 2011 with the help of Vermont fund manager Prentiss Smith and Co. I’m very glad we did — our returns haven’t suffered and we’ve avoided the risk associated with being invested in fossil fuels. There is no argument that the Vermont pension fund would have been better off if it had done the same.

The good news is that our Treasurer Beth Pearce has taken real steps to move state pension funds in this direction, by pursuing a method to maintain the absence of coal from the pension’s separate accounts due to market pressures earlier this year as well as hiring Pension Consulting Alliance to provide a consensus study of divesting completely from fossil fuels. More needs to be done and we certainly should continue to provide strong support for divestment to continue the momentum.

Finally, we must prepare the state to be ready for a reduced carbon world by increasing our investment in renewable energy and saying no to new fossil fuel infrastructure that is predicated on rate-payers having to cover the costs over decades. The goal of 90% renewable energy by 2050 is aggressive and will require all forms of clean energy production (including wind), but will be critical to avoid being caught flat-footed as this kind of energy becomes necessary to be economically viable. Our investment now in renewable energy, like that of many large companies including Google (my former employer), will give us the financial resiliency for the future.

Climate change is real and the urgency to reduce carbon emissions is increasing across the world. As a state we have chance to take actions to punish bad actors like ExxonMobil for knowingly misleading the public on the effects of fossil fuels on our planet. But perhaps more importantly, we can take steps now to ensure our small state is fiscally resilient as the world comes to grips with the reality that we must change, and change quickly, to a planet not dependent on carbon and a carbon-based economy.