January 8, 2016

Vermont Governor’s Call to Divest Ignores Key Facts

With the divestment effort hitting increased resistance on college campuses, activists have apparently shifted their efforts towards state pension funds.

In his state-of-the-state address this week, Vermont Gov. Peter Shumlin called on the Vermont State Retirement Systems of Montpelier to divest from coal companies, citing California’s recent law that forced state employee and teacher pension funds — the California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) — to divest their holdings in coal companies as basis for similar legislation in Vermont. Governor Schumlin went so far as to say he was “honored” to have the leader of the divestment movement at his speech, referring to 350.org leader and Vermont-raised divestment activist Bill McKibben.  Unfortunately, the Vermont Governor made some key errors in his announcement.

CalSTRS and CalPERS Opposed California’s “Partial Coal” Divestment Bill

What Gov. Schumlin may not know is that California Gov. Jerry Brown signed the state’s divestment bill DB 185 into law against the strong objections of CalSTRS and CalPERS Chief Investment and Executive officers who emphasized the fact that divestment loses money and does not bring about social change. As CalSTRS Chief Executive Officer Jack Ehnes stated, “divestment bears the risk of adversely affecting an investment portfolio and severs any chance to advance positive change through shareholder advocacy.”

Further, as we previously noted, the fine print of the California bill only demands “partial divestment” from coal and only targets schools that generate more than 50 percent of their revenue from coal mining, which effectively excludes the biggest coal producers from divestment. According to Bloomberg, this is common practice for institutions divesting from coal, noting “the criteria they use to select candidates for divestment exempts some of the biggest producers, however. That’s because those companies are large, diversified miners and only get a small part of their revenue from coal.”

Divestment Efforts Have Rough Track Record in Vermont

If Vermont’s track record with divestment is any indicator of this proposal’s fate, the chances of Montpelier State Retirement Fund liquidating its fossil fuel holdings is bleak. In fact, the Vermont Pension Investment Committee has outright rejected similar divestment proposals three different times in the past two years.

Beth Pearce, Vermont’s state treasurer who manages the assets of the Vermont State Retirement Systems of Montpelier, has also repeatedly rejected divestment on the grounds that it risks employee’s funds and squashes opportunities to engage with energy companies. This week she once more stated, “divestment is not the appropriate strategy for our fund and is counter to our fiduciary responsibilities to the fund and its beneficiaries.”

Divestment Would Cost Vermont Millions

Even if you ignore the opinions of other leaders in the state and California, take a look at what divestment would cost the fund according to calculations from the Director of Investments for Vermont. Effectively, divestment would:

• Cost the state pension funds $10 million per year in foregone returns,
• Cost $8.5 million in fees to implement, and
• Violate the “Exclusive Benefit Rule” which says that plans must be maintained and the trustees must act for the exclusive benefit of the plan’s beneficiaries.

Concerns over the financial reality of divestment have been echoed through the state of Vermont, including rejections by public and private universities alike. And despite 350.org founder Bill McKibben’s efforts at Middlebury College, the very school where he teaches, Middlebury President Ron Liebowitz also rejected divestment and had the following to say:

“Given its fiduciary responsibilities, the board cannot look past the lack of proven alternative investment models, the difficulty and material cost of withdrawing from a complex portfolio of investments, and the uncertainties and risks that divestment would create.”

Divestment Does Nothing to Reduce Carbon Emissions

It’s clear that divestment is fighting an uphill battle, but what is perhaps the most perplexing aspect is that Gov. Shumlin has, on multiple occasions, voiced his opposition to divestment admitting “in concert with [state Treasurer] Beth Pearce…we believe that having a seat at the table — owning the stocks and having a seat at the table with the oil companies — is a good place to be.”

Meanwhile, Gov. Shumlin’s reasoning behind his sudden support for divestment is seriously misaligned with his supposed goal of solving climate change. In his speech he urged listeners to, “take every sensible action against climate change.”

But, as stated by divestment activists and opponents alike, divestment is a strategy made to demonize the industry as a whole rather than promote engagement and solutions. It seems far from “sensible” for Gov. Shumlin to stigmatize fossil fuel companies, especially as a longtime supporter of natural gas pipelines in Vermont who believes, “expanding natural gas beyond Chittenden and Franklin counties will be good for Vermont.”

Vermont Announcement Another Empty Gesture

At the end of the day, Gov. Shumlin’s “empty gesture” is no different than what we saw with divestment pledges at Georgetown, Stanford and Oxford, all schools that do not have any real fossil fuel investments to begin with. Case in point: in his remarks, the Governor specifically called for the pension fund’s divestment from ExxonMobil stocks. Another empty gesture indeed, as the pension fund only has $220,076 of ExxonMobil assets in the first place, according to the Vermont Treasury.

Based on the government’s calculations and Shumlin’s long-standing support for fossil fuels, it is clear that the announcement to divest Vermont’s pension fund does not make financial nor environmental sense. Rather, these remarks are nothing more than an attempt to demonize an industry while skirting the state’s duty to engage stakeholders and implement effective solutions to reduce carbon emissions.