(Editor’s note: This story was updated and expanded May 3 at 8:25 p.m.)The state treasurer says a financial firm suggested by divestment advocates will be allowed to help determine whether the state pension funds should be scrubbed of fossil fuel-related investments.
Treasurer Beth Pearce made the recommendation in a report to the Legislature, which had requested the Vermont Pension Investment Committee pursue divestment. She testified Tuesday before the Senate Government Operations Committee.
The report by a subcommittee of VPIC, led by Pearce, also comes after a monthslong public dispute between Gov. Peter Shumlin — who favored divestment of coal-related and Exxon Mobil stock to help fight global warming — and Pearce, who said investment decisions should not be politically based.
Pearce said a firm that VPIC already works with, NEPC LLP, would be joined by a second firm selected from a list of four provided by divestment advocates. Together, Pearce said, the two firms will study whether it makes financial sense to dump the fossil fuel-related holdings.
Having the two firms cooperate and develop a consensus view made more sense, she said, than having them compete and possibly offer unresolvable opinions. Pearce likened the effort to the way the economist for the governor and one for the Legislature offer a consensus revenue forecast.
After their review, the investment firms will make a joint recommendation to the entire pension committee.
“I’m committed to an open, transparent and collaborative process,” Pearce said in an interview Tuesday. Allowing the divestment advocates to participate in the process will, she said, produce a better result with stronger “buy-in.”
Pearce told senators she wanted to take a fresh look at divestment but said she would not commit to divestment until the review is complete.
“I’m a person as a fiduciary guided by the facts of the situation and frankly not the politics of it,” she told the Senate panel. But Pearce said she was open to adding more parties and perspectives to the review.
While advocates for divestment, including the Vermont Public Interest Research Group and the Sierra Club, applauded Pearce’s approach, Shumlin described it as inadequate and disappointing.
“Let’s be clear: Today’s report is no substitute for the action on divestment that we need,” the governor said. He called it disappointing that Pearce’s report didn’t make a commitment to never buy coal stocks. Shumlin’s spokesperson, Scott Coriell, said the treasurer was also taking the governor’s criticism “too personally.”
Pearce said it was unclear how long the two firms would take to make their recommendation to the full pension committee.
The second firm, she said, would be paid with $40,000 from her existing budget. No pension money would be used, she said.
The report comes after several meetings of the VPIC subcommittee, which heard from more than 30 people and a wide spectrum of witnesses.
“We really made an effort to bring in all groups,” Pearce said. The groups invited included the Sierra Club and the Vermont Troopers Association.
VPIC handles investments for the state’s 50,000 retired teachers, municipal employees and state workers and their families. It has about $4 billion in assets. Of that, $56 million is in energy-related stocks, according to the treasurer’s office.
The requests by the House, Senate and governor for divestment were slightly different. Pearce said the subcommittee decided to pursue three tracks, looking at coal, Exxon Mobil and also all the fossil fuel-related stocks.
Pearce told senators the state investment in coal as defined by the governor went to zero recently when a poorly performing coal company was dropped from an index fund the state held. By a more liberal definition, the state has about $1 million in coal-related investments.
The pension funds have about $200,000 in Exxon Mobil stock.
Pearce, who is running for re-election and faces a primary challenge from a divestment advocate, said her view on whether divestment makes sense will be driven by the review, not politics.
Paul Burns, the executive director of VPIRG, praised Pearce after her Senate testimony.
“I think this is a mark of progress today, and we’re happy about it,” Burns said. “I think this is genuinely a process that is working.”
The Sierra Club said in a statement: “Treasurer Pearce’s diligent review will protect Vermont’s public pensions while simultaneously transforming investment of fossil fuels within the global marketplace and ultimately keeping fossil fuels in the ground. Treasurer Pearce should be commended for her integrity in the process.”
A letter from Eric Becker of Clean Yield Asset Management, who appeared alongside Shumlin at one of the news conferences the governor held to criticize Pearce’s stance on divestment, was read to the committee, praising the collaborative approach.
Burns and the governor said it was critical the state not only divest from coal but promise never to invest in it again. They both pointed to the state’s decision to dump tobacco stocks, led by then-Treasurer Jim Douglas, in 1997, but said there was no provision to never buy more and that over time, index funds were purchased with tobacco holdings that now amount to an estimated $6 million.
Pearce told the committee it could cost hundreds of thousands of dollars to have the pension fund investment firms set up “a screen” to keep out coal stocks, but Burns and other advocates disputed that, saying any firm that wanted $4 billion in business would be flexible on fees.
Sen. Jeanette White, D-Windham, chair of Government Operations, said she hoped the process would result in full divestment. She asked Pearce to report back midsummer on progress so candidates could answer questions on the campaign trail.
Sen. Anthony Pollina, D/P-Washington, said afterward he wanted to see divestment happen and was driven more by the gut feeling the investments should be removed than for financial reasons.
“I just wish we could be more specific about what happens next,” Pollina said.