The House Government Operations Committee heard from several presenters Thursday morning speaking on S.42, which would seek to divest public pension funds of fossil fuel investments.

The first presenter was former Treasurer Beth Pearce who started her presentation by saying that she was hoping we can all work together to come to a solution.  She reviewed the Vermont Pension Investment Committee (VPIC) Environmental, Social and Governance (ESG) activities (update to 2024).

She noted that while she is utilizing public Treasurer and VPIC materials, the views expressed are solely her own as a Vermont citizen and member of the retirement system and do not represent those of any organization. 

She noted that divestment does not reduce fossil fuel emissions, but rather abdicates our voice in effecting positive change. Legislating investment can also create fiduciary challenges, such as:

• Slippery slope
• Legislative changes vs changing landscape
• Liability issues

VPIC studies in 2017 and now in 2023 state that there would be significant cons to the pension system if divestment was implemented. There are significant costs even to accomplish the reporting contemplated in S.42.

Engagement with companies and their boards of directors has proven to be effective in changing corporate behavior (this is what ESG is supposed to do, guide the social values of investors). She described VPIC as a leader in the ESG space and has engaged its investment managers on ESG issues, including climate change, with positive results.

She shared a position statement from the VPIC board:

“For the reasons set out in Meketa’s report, VPIC opposes this approach. As we have testified, a broad fossil fuel divestment mandate would lead to a phaseout of VPIC’s private market investment program and a corresponding meaningful reduction in the assumed rate of return VPIC would utilize.  Every 0.50% (50 basis point) reduction in the assumed rate of return drives the annual actuarial determined employer contribution higher by approximately $50 million, as estimated by the actuary, Segal Marco. Further, selling off shares in the energy companies negates our ability to effect positive change through our proxy votes and to invest in the energy transition.”

She concluded that “if we are to solve this problem, we need the best thinking from everyone. People need to start focusing more on areas where they can agree than on those where they disagree.” She suggested that VPIC’s ESG Committee could conduct six-month in-depth forums bringing parties together for discussion and action around:

• VPIC Carbon Policy
• Investment Manager Survey
• Meketa Approach
  • Portfolio-wide Net Zero Goal
  • Portfolio-Wide Real Economy Net Zero Approach
• Expanded engagement activities identifying priority companies to target.
• Collaboration with pension oversight joint committee, pension boards, legislature, environmental groups, and interested parties.

Next to testify was Treasurer Mike Pieciak who expressed his support of S.42.  Pieciak noted that we need to be more strategic in our investment approach.  He believes this bill provides a framework that doesn’t harm the pension plan, helps monitor investments over time and helps monitor risk mitigation.  Over the next 10 to 20 years, fossil fuel investments will not be as good for the system as they have been.  For this reason, he sees S.42 as a strategic bill that helps reduce risk.  Pieciak noted that there are amendments being proposed that will only serve to strengthen the bill. 

Representative Hooper asked how we are going to weigh a company that has “both sides of the scales” covered, meaning that they produce both green energy and fossil fuels.  Pieciak noted that it’s about the percentages the Legislature agrees on.  He noted that if you are a “purist and think in absolutes”, this approach will narrow the investment field substantially.  So, identifying percentages is critical going forward especially if you are looking for a better environment and better earnings. Pieciak also noted that flexibility needed to be built into the system which needs to be reviewed perhaps every 2 to 5 years. 

Up next was Patrick Flood, a former state employee in several exempt positions to include four years as Deputy Secretary of Human Services, and beneficiary of the state’s pension plan.  He testified in support of S.42 as he firmly believes it is more important for us to end our investment in “destructive and dishonest corporations” than it is to maximize returns. As confirmed in his letter which he presented to the Committee. He believes this is a moral issue more than a financial one.  “We need to send a loud and clear message to the fossil fuel companies that we will not support their effort to keep developing and burning fossil fuels.  The future of our children and grandchildren depends on it.” 

Francie Marbury spoke next. She is a pension holder, educator and former principal.  She spoke about her personal story and how her pension is a major part of her household income.  She supports S.42 and hopes that the House would pass it for the benefit of retirees and future retirees.

David McColgin from Third Act Vermont and a member of their Divestment Action Team spoke next.  They claim to be a “community of Americans” over 60 concerned about climate, democracy, and the destruction of Vermont’s environment. They draw on their life experiences and skills to tackle the “unfinished work of their lifetimes” – ensuring a safe and stable planet for generations to come.

Third Act supports the S.42 for three reasons:

1. Fossil fuels are a bad investment.
2. The State’s Pension Funds should not be investing in the destruction of Vermont’s Environment.
3. Divestment dovetails with the superfund bill.

NOTE: By this metric we should also divest any investments related to Vermont agriculture or wastewater treatment given the negative impacts those industries are having on the quality of our water.

They believe that divestment of Vermont’s pension funds will lead to decarbonization and forcing fossil fuel companies to “stop the drilling.” They noted that by 2040, the fossil fuel industry plans to spend $1.5T on new oil and gas fields. 48% of industry expenditures goes towards this purpose versus 1% towards clean energy (IEA Report). They believe divestment is effective as “empirical studies” show divestment lowers capital flows to fossil fuel companies. The Fossil Fuel industry is paying millions to support anti-divestment legislation.     

They also believe divestment is “low cost” as it would require “no additional staff and minimal additional time to identify and monitor ongoing exposure to fossil fuel companies.”

NOTE: VPIC disagrees with this. They have stated in the past they would have to nearly double their staff or contract labor force to manage these assets themselves versus maintaining the current index funds.

Third Act also touched on the private Investments that VPIC manages. They noted that the bill already exempts these investments and that the bill only requires divestment in the public markets, and even then, only to the extent VPIC finds it is “financially prudent” to do so.