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.
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.