March 22, 2016

Pragmatism Wins in Vermont Divestment Debate

After long deliberation and careful analysis from legislators, economists and pension fund stakeholders, the Vermont Senate Government Operations Committee decided to not hold a vote to force the state retirement funds to divest from fossil energy holdings. Likewise, the House also backed away from enforcing state mandated divestment last month. Instead, at the urging of both the House and Senate, State Treasurer Beth Pearce made it known that the Vermont Public Investment Committee (VPIC) will form an inclusive and comprehensive subcommittee to study divestment further.

In response, Vermont Governor Shumlin, the primary figure behind the state’s divestment push, has put forth an official letter effectively putting pressure on the VPIC’s divestment subcommittee to hurry up and keep the process “objective.”  In the press release Gov. Shumlin calls on the VPIC to create a plan to divest from coal by May 2, 2016 and include a committee member who is “open to divestment” to ensure all viewpoints are considered. But based on the history of this legislative push so far, mandating deadlines and demands will prove fruitless for the Governor’s campaign.

Beth Pearce has stood firmly for her fiduciary responsibility to pension beneficiaries for years, reiterating her stance last week at the Senate Government Operations Committee saying “legislating investments, I believe, is an inappropriate practice.” Rather than rushing to make a political statement, Pearce has championed upholding fiduciary responsibility and analyzing the financial consequences of divestment though an objective lens.

In an official statement released the same day as the Governor’s, Pearce writes,

“I find it unfortunate that we received a letter from the Governor that outlines a deadline and a conclusion before any discussion of the scope of the analysis has taken place.”

According to the Treasurer, VPIC is carefully reexamining divestment, but no predetermining action will be taken without rational analysis of the facts. In a recent interview Thomas Golonka, the chair of VPIC, also explained that divestment is a costly and complex process that goes beyond simply dumping a handful of stock on a whim. He states,

“As a committee, our goal is to make sure we’re managing the managers correctly and to be fully diversified so we’re meeting our actuarial obligations. The Legislature coming in and just picking that apart based on one or two sound bites is difficult…”

On the other hand, Golonka notes that some advisors think the state should maintain, and even potentially increase energy investments, explaining, “some of our managers are looking at energy right now as a strategic move to add.”

Recent calculations by the Treasury that found divestment would cost the state pension funds $10 million per year in lost returns and $8.5 million in implementation fees. With millions of state dollars at stake, Pearce has warned Shumlin and other proponents of divestment against making decisions before deliberation, equating their calls for swift action to “drawing your curve and then plotting your data.”

In the press release Pearce also points “substantive errors” in Shumlin’s letter. For example, Shumlin’s first demand includes:

“A plan to divest from coal, as defined by the subcommittee and Exxon Mobil with clear timelines and objectives by May 2, 2016 so that the subcommittee can report to the legislature on progress.”

But as Pearce points out, only an “update on the process” was asked for by May 2—not a decision and certainly not a plan.

Contrary to the recent statements outlining a deadline for divestment, the state is not and has not actually divested from anything. As made clear numerous times by Treasurer Pearce, jumping the gun on divestment “is not productive for determining the best results for the beneficiaries.” Instead, Pearce and the VPIC committee are committed to taking a pragmatic, objective approach to determine what is best for Vermont’s retirees.