Gov. Peter Shumlin announced last week his intention to push for divestment of coal and ExxonMobil stocks from the state’s retirement account, and lawmakers are preparing legislation to accomplish that.
Among critics of such a move is State Treasurer Beth Pearce, who says Vermont can best fight carbon pollution by retaining ownership in the companies that most contribute to it. Moreover, Pearce said, the retirement fund’s purpose is to support pensioners, not to enact social policy.
Proponents of divestment, citing the Paris climate agreements and a recent bankruptcy claim by the country’s second-largest coal company, say Pearce is mistaken in trusting fossil fuel assets to deliver reliable long-term returns.
“We’re investing in these companies, and then we’re spending money to counteract their effects on the environment. It doesn’t make sense,” said Sen. Anthony Pollina, P/D-Washington, who is vice chairman of the Senate Committee on Government Operations.
That committee will consider a bill Thursday that would divest the state’s retirement account of assets from the top 200 fossil fuel producers in the country.
“We’ve got to put our money where our mouths are,” Pollina said. “We’re committed to resisting climate change, so we should not invest in companies that are the cause of climate change.”
But ownership in fossil fuel companies can actually further the state’s policy goals regarding climate change, Pearce said. She spoke with Shumlin the morning of his announcement and says she holds the same concerns that led him to make it.
“We both share an interest in the environment, and we both share an interest in doing something to address climate change,” she said.
Vermont’s pension fund board is among a coalition that pushes for greater accountability from companies in which its members hold shares, Pearce said. She cited a resolution last year by BP, passed with support from 98 percent of shareholders, requiring greater disclosure from the company on risks its products impose on the Earth’s climate.
In addition, Pearce said, divestment just doesn’t make economic sense. A study performed at the state’s request recently found that abandoning fossil fuel investments would pose “a sizable risk” to retirees’ funds, and ultimately advised against such a move, she said.
Divestment likely would result in losses of up to $9 million each year, in addition to large upfront costs associated with the changed investment strategy, she said.
On top of all that, it’s a bad precedent for legislators to begin meddling in state retirees’ pension funds, Pearce said. The fund’s oversight board has voted unanimously against fossil fuel divestment, she said.
Finally, divestment wouldn’t actually change anything, she said.
Staff at her department released a memo in 2014 that used the state’s divestment from tobacco companies to illustrate the futility of the practice.
“Given that those companies are a) still in existence, b) have outperformed the overall market, c) people are still smoking and d) states are still utilizing tax and settlement fund monies related to smoking to implement budgets, it is fair to say that that divestment campaign was a failure,” the memo concluded.
Divestment doesn’t hurt the companies involved, Pearce said, and selling off fossil fuel assets would simply put them back onto the market, where someone else would buy them who cares even less about climate change.
That’s the message Matt Dempsey, representing the Independent Petroleum Association of America, urged Vermonters to heed.
“Divestment doesn’t actually address climate change, and it’s costly for no climate gain,” he said.
The real motivation behind divestment efforts is to unfairly malign companies that have in recent years released less carbon into the atmosphere from within the United States than in the past, Dempsey said.
That’s certainly one motivation, said Austin Davis of 350.org, a group of climate change activists pushing for Vermont to drop its fossil fuel assets.
“You vote with your dollars,” Davis said, and shunning fossil fuel investments attaches a stigma to that industry.
“Doing this is a strong statement if nothing else, but there are also a lot of other reasons,” he said.
For instance, recent agreements at the Paris climate conference set in motion future regulations that will discourage the use of fossil fuels, Davis said.
The effect of these regulations will be to leave in the ground fossil fuels that would have otherwise been exploited, he said. Fossil fuel companies report these untapped reserves as secured assets, falsely inflating their value, he said. Divesting from these stocks at their current prices makes economic sense, he said, pointing to the dramatic downturn in coal assets’ worth in the wake of the Paris agreements.
Against Pearce’s argument for the control that continued ownership gives investors in fossil fuel companies, Davis said that control is illusory.
Managers at these firms have known for decades that carbon pollution at sufficient levels will change the Earth’s climate, he said, citing a recent report that ExxonMobil scientists knew of this effect as early as the 1970s.
The firm’s executives concealed this knowledge from investors and the public, while seeking to discredit other scientists who arrived at the same conclusion, Davis said. He predicted the company will continue to deceive its investors and the public, as long as it’s profitable to do so, keeping investors from effectively controlling their assets.
Vermont Pension Investment Committee member Karen Paul pointed to coal in particular as a good argument for fossil fuel divestment because of its poor long-term outlook. The committee oversees state retirees’ pension investments.
“Coal has not been a great investment. I think everybody agrees with that,” Paul said.
Her committee must invest solely with an eye for reliable long-term gains, and coal doesn’t support that aim, Paul said.
She said she has agitated among committee members for at least a study on the effects of the state’s divestment from coal companies, but to no avail.
“I was the only member of VPIC willing to look into it,” Paul said.
She and Pollina both argued that divestment by Vermont could help lead to more widespread action, coming on the heels of California’s recent decision to divest itself of coal company assets.
“I agree that you don’t necessarily expect Vermont doing this to change the world … but if you band together with other states that divest, you’ll create momentum, and when you do that, you will have an impact,” Pollina said.
