Last year when the Burlington Employee Retirement System (BERS) left the Vermont Pension Investment Committee (VPIC), the collection of retirement funds overseen by the state, many saw it as an opportunity to move more quickly toward divestment.
VPIC has resisted the idea of fossil fuel divestment. Earlier this year, when Gov. Peter Shumlin made divestment from coal and oil giant Exxon Mobil a rallying cry in his State of the State address, the proposal met with swift opposition from State Treasurer Beth Pearce, who sits on the VPIC board.
While divestment wasn’t a factor in BERS decision to leave VPIC, according Jim Strouse, chair of the BERS board of trustees, others say the move gives the city pension fund the latitude to determine how its money is invested.
Strouse said BERS left the state retirement group to save money on management fees. The city’s pension funds are now placed in privately managed index funds with Mellon Capital. “Keep it simple keep it cheap” was the guiding principle, Strouse said. For divestment to be a consideration, it will have to make sense for the funds’ bottom line, he said.
“Our sole duty is to the plan beneficiaries,” Strouse said, “If you want us to divest from something, tell us how it will help us meet our fiduciary responsibilities.”
That’s exactly what City Councilor Selene Colburn, P-Eastern District, hopes to be able to do — if not now, then sometime in the next three to five years, she said.
For Colburn, fossil fuel divestment is about slowing the progress of climate change. But she also believes that the numbers are starting to make sense for divestment too.
Eric Becker, chief investment officer at Clean Yield Asset Management, agrees. Becker testified on the economics of fossil fuel divestment before the Legislature earlier this year, and gave the same presentation to Burlington’s divestment committee.
That committee was formed in 2014, following a resolution pushed by Colburn. It’s comprised of councilors and BERS trustees, members and others, with Colburn serving as its chair.
Becker says the recent Paris climate agreement attempts to keep the rise in global temperatures to 2 degrees celsius. In order to meet that goal, 80 percent of known fossil fuel reserves will have to stay in the ground, he said.
That means many of the reserves currently held by companies will become “stranded assets,” Becker said. As a result, CitiGroup’s equity research arm estimates $100 trillion in carbon reserves will become stranded assets by 2050, according to Becker.
As of the Paris talks, 500 institutions — universities, municipalities foundations and others — with $3.4 trillion in combined investments are looking to incrementally eliminate fossil fuels from their portfolios, Becker said.
“When Wall Street sees that $3.4 trillion is looking for a new home, they’re launching new products,” Becker said. The trend has sparked the launch of fossil-free index funds.
Management fees in those funds are more expensive than what BERS pays currently, according to Jeff Wick, a BERS trustee and a member of the city’s divestment committee. But with the demand growing, management fees are likely to drop.
“We’re going to have more and better options, until, I estimate, in five years it will be no problem to do what some people want us to do, which is divest in fossil fuels,” Wick said.
In the interim, Wick and Colburn say the committee plans to work with financial managers at Mellon Capital to determine what percentage of its investments are currently in fossil fuel companies. They plan to use the Carbon Underground 200, a list developed by the climate advoacy group 350.org that ranks the top 200 coal and oil and gas companies by the potential emissions from their reserves.
By researching what portion of BERS index funds are invested in those companies, committee members hope to determine to what extent they may already be divested from the fossil fuel industry.
It’s possible, Wick said, that the analysis will show city is further down the path toward divestment than anyone realizes.
