Business & Economy

Pearce suggests steps other than fossil fuel divestment

Beth Pearce
Vermont State Treasurer Beth Pearce. File photo by Amy Ash Nixon/VTDigger
The state likely can use its pension investments to address climate change without going as far as divesting from fossil fuels, State Treasurer Beth Pearce said Thursday.

Divestment would increase the state retirement fund’s risks and costs, she wrote in a letter accompanying a new report from consultants.

Environmental groups, legislators and former Gov. Peter Shumlin last year tried to get trustees of the fund that pays state employees’ pensions to drop some or all fossil fuel assets.

Opponents of divestment saw Pearce’s statement this week as a victory. But some environmental organizations said they are the ones who prevailed, after nine months of hearings and a 70-page report commissioned by the treasurer’s office.

Pearce said in an interview they’re both right.

“There are no losers,” she said. “This is about a collaborative effort.” The nearly yearlong inquiry into divestment was carried out by a group that included representatives of state employees’ unions, Exxon Mobil, the Sierra Club, the Independent Petroleum Association of America and the Vermont Public Interest Research Group.

As part of that effort, the Vermont Pension Investment Committee’s subcommittee on divestment asked Pension Consulting Alliance to study the effects of fossil fuel divestment on the state’s $3.7 billion public employee retirement account.

Pearce published PCA’s report this week, accompanied with a letter in which she says divestment would increase the fund’s risks and costs.

But the letter describes steps the state can take toward lower-carbon investments.

“The PCA report … states that ‘markets now offer meaningful tools to address climate risk,’” Pearce wrote to fellow members of the subcommittee.

She outlined several strategies worth looking into.

One of them is to build a coalition between administrators of large accounts who could negotiate with investment firms for lower fees on low-carbon investment vehicles. Pearce has said in the past that the fees and portfolio restructuring costs associated with low-carbon investment funds are so expensive the state can’t afford them. More bargaining power could change that, she said.

Pearce also recommends amending the retirement account’s rules so the investment committee must screen the environmental, social and governance policies of investment managers it might hire.

She recommended changes that could spur greater investment in renewable energy assets as well and endorsed a continued dialogue with investment managers on the topic of climate change.

“I believe we should take this opportunity to explore these opportunities to move to a low-carbon economy consistent with our fiduciary responsibility,” Pearce wrote.

That’s tantamount to divestment, some environmental advocates said.

“Divestment includes a lot of things, but they’re all about moving toward a low-carbon portfolio,” said Austin Davis, of climate group 350Vermont. “Folks think it’s like a ‘cut-and-run’ thing, but it’s a deliberate shedding of fossil fuel assets over time … and that’s what this is all about: deliberately going toward fossil fuel-free or low-carbon alternatives.”

That’s definitely not what divestment is about, said Guy Page, who lobbies on behalf of petroleum producers and operates a website promoting their views on divestment.

“My sense is that this was a very thorough look at the pros and cons of economic impacts and climate impacts of divestment,” Page said of the PCA report. “It decided this would not be good for pensioners, and it would really have no impact on climate change.”

“We hope this would finally put to rest the divestment tactic, and that climate change tactics take a more positive, effective tack,” he said.

For example, those could include a bike sharing program in Burlington, he said, or further use of wood as fuel rather than fossil fuels.

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  • Will State Treasurer Beth Pearce’s Pension investment strategy return the ~7% that continues to be used in pension’s forecast assumptions?

    • bill_christian

      I hope that no one is doing calculations based on 7% growth. That would be insane.

      • wendywilton

        Check out the annual pension valuations for the state’s plans. The assumed rate of return will be noted in the reports. You will find most plans have a 7-7.5% assumption.

        • bill_christian

          We may achieve 7% stock growth for a few more years by “migrating” wealth from working class to the very wealthy, but there isn’t much more wealth to be sucked out of these people. We will not have 7% GDP growth. We can also achieve 7% for a while by using the tried-and-true “bubble”.

  • Dave Bellini

    If everyone is happy we can consider the matter resolved……

    • Guy Page

      totally agree

  • GraceGershuny50

    The move towards more climate and environment friendly investments is great, and it’s pointless to argue about whether it’s the same as divestment.

    I am concerned about Beth Pearce’s opposition to the whole concept of a State Bank, an idea that would remove our taxpayer assets from TD Bank — a major investor in dirty fossil fuel pipelines that a large chunk of our population strongly opposes. Beyond this, it would keep our tax dollars in the state, and at the very least, return the hefty fees we pay them to hold our deposits to the State treasury rather than going to support Canada’s extraction of oil from the tar sands.

    We need to move forward with the citizens commission to develop a plan to create a State Bank as proposed in S48-H208. For more information check Vermonters for a New Economy – http://www.neweconomy.org.

    • Erma Sidelines

      as you may remember, a discussion of the establishment of a state bank was summarily shut down last year after ms pearce chaired a meaningless “town hall conversation” which was clearly meant to appease mr pollina’s & ms hallsmith’s hopelessly naive supporters and little else.
      it’s a new biennium: get on the phone with your rep’s and senator and give them an earful about the pollina/cina proposal cited above. it’s not “a matter of scale”: north dakota (pop. 647,535) has had one for over 100 years.

  • It is interesting that the discussion is about the risk of divestment, but nothing about the risk of continued investment in fossil fuels. There is a seismic shift happening in how the world produces energy, and those who are not in the forefront of that shift will suffer unbelievable losses. I would like to recommend a talk on disruptive technologies in the energy and transportation sectors by Tony Seba: https://www.youtube.com/watch?v=Kxryv2XrnqM

    • David Schoales

      Great video. Combine this info with the fact that investment funds will hold onto coal and petro stocks for as long as they can (and penalize VT if we dump them) so they don’t have to book the losses, Vermont will take a real bath if we stick with them.

  • Julie Bethany Elfin

    Great to hear that the state is moving toward positive screening of investments! Even if we don’t divest from all fossil fuels, it’s important to prioritize funds that align with Vermont’s social and environmental values.

  • Hannah Chodosh

    Glad VT is moving toward socially & environmentally responsible investments. These are lasting, positive changes to the way the state manages its money, even if it isn’t full divestment.

  • Paul Richards

    Divest the whole program out of existence and save us all the needless drama and expense. Taxpayers have been on the hook for way too long just to provide these discriminatory pension plans to these elites. If social security is good enough for me it is good enough for them. What makes them better and deserving?

  • Dan Quinlan

    This is good news, and is hopefully the beginning of an eventual complete divestment away from fossil fuel companies. In the long run, that is the wisest strategy for both pension holders and the rest of us. Global investment in clean energy is on a steady and inevitable climb, while the massive decline in the coal industry is the precursor to what the rest of the fossil fuel industry will see.

    Unfortunately, the hidden costs of climate change are still vastly underestimated by most people. As awareness of the impacts of climate change on human health become more widely understood, the economic argument will shift. These effects are already being seen in Africa, Australia, island nations, and beyond. The question is whether people and institutions wake up fast enough to protect our kids, our grandkids, and those that follow. As it stands now, they will pay an extremely heavy cost for our societal waffling and our unsustainable behavior.