Landmark bill, passed by Maine House and Senate, seeks to sell fossil fuel investments

Lawmakers this week approved a bill ordering the Maine state government and pension fund to stop investing in fossil fuel companies as part of the global ‘divestment’ movement in response to climate change .

But the sale of shares or other investments in fossil fuels would not take place immediately – and may never happen entirely – due to a key clause that still leaves great latitude to managers of the Maine’s nearly $ 17 billion pension fund.

“Any plan we come up with must put the financial interests of our members first,” said Sandy Matheson, executive director of the Maine Public Employees Retirement System.

Thousands of institutions and governments around the world have pledged to divest approximately $ 14 trillion from oil, coal, natural gas and other fossil fuel companies. While colleges and universities have been among the most high-profile divestment cases in the United States – including Unity College in Maine, the first in the country to announce a divestment plan nearly a decade ago – several major cities as well as New York State’s $ 226 billion pension fund have pledged to move away from fossil fuels.

But if the Maine bill becomes law, Maine would be the first state where divestment has been ordered by the state legislature.

The measure received final approval Thursday in the Democratic-controlled Maine Senate in an 18-15 vote a week after the House voted 80-57 largely depending on the parties to approve the measure. Governor Janet Mills, a Democrat, has yet to make her position known on the bill, but has made tackling climate change a top priority for her administration.

Proponents of divestment hailed the passage of the bill as a historic moment that helps put Maine at the forefront (at least among state governments) of an international campaign that they believe has an ethical basis and solid financial. Young climate activists, environmental groups and state retirees led the fight for the bill in Maine.

“As the Gulf of Maine continues to heat up, the pressure on the fossil fuel industry is also increasing: Divestment sends a really powerful message, and Augusta’s involvement adds real weight,” Bill McKibben, Author, Senior Advocate of divestment and co-founder of the group, said in a statement after the vote in the House. “This action is a gift to the planet – and also to pine state retirees, freeing them from deficit investments in gas and oil that are also undermining the landscape they will one day retire in.”

The law project, LD 99, would require both the Maine state treasurer and the board of directors of the state pension fund, known as MainePERS, to divest from fossil fuels by January 2026. This process would include selling all current holdings and not investing in specific types of companies that hold fossil fuel fuel reserves, operate coal-fired power plants, participate in extraction or operate infrastructure used for fossil fuels.

Treasurer Henry Beck said the state’s cash pool investments are already fully compliant, but about 3% of the $ 70 million in trust funds managed by his office are in energy companies. Beck, who backed the bill, called it “bold law” consistent with the state’s climate goals.

According to the analysis provided to lawmakers, about $ 1.2 billion, or 7.7%, of the $ 16.5 billion managed by MainePERS is invested in fossil fuel-related companies, including oil and gas companies as well. as of public services as of Dec. 31, 2020. That’s up from 9.2 percent a year earlier at MainePERS, which pays about $ 90 million in monthly benefits to retired public servants and teachers.

But a legislative committee made a key change in response to concerns raised by MainePERS that the original version could have forced the organization to violate the Maine Constitution. Specifically, the amended bill will require divestiture “in accordance with sound investment criteria and in accordance with fiduciary obligations”.

In essence, this phrase “fiduciary duties” means that MainePERS cannot be forced to divest itself if it will harm the finances of the pension fund. Matheson, the executive director of MainePERS, said the addition of a language means the bill is now “constitutionally compatible,” but a specific plan for how divestment would take place if the bill became law has not yet been developed.

“What this means is that our primary fiduciary duty, under the Maine Constitution, is to act in the best financial interests of members – so all of our decisions must be in the best financial interests of members,” Matheson said on Friday. “So we can’t do a wholesale divestment when it would result in a loss for the fund. “

Cassie Cain, youth engagement coordinator with Maine Climate Action Now and 350 Maine, said the Maine bill could provide a model for similar discussions underway in California, New Jersey, Massachusetts, Colorado and in other states.

Cain acknowledged that the change of language introduces a certain “gray area” in the implementation of the bill. His organization and others, however, will continue to engage with MainePERS officials on the issue and urge retirees and public employees who support divestment to keep the pressure on their pension fund managers.

“If that’s the price to pay, having a little more implementation (time)… that’s okay because it’s still a great precedent,” Cain said.

One of the many factors that MainePERS and other pension funds take into account in investing is financial risk. And fossil fuel companies have their share of risk these days as government leaders, businesses and consumers pledge to reduce global warming emissions.

According to a recent analysis by CarbonTracker, a think tank that analyzes the effects of the energy transition on capital markets, global investors lost $ 123 billion in shares in fossil fuel companies between 2012 and 2020. While these Fossil fuel companies have significantly underperformed the stock market. overall during this period, stocks of renewable or cleantech companies gained $ 77 billion and outperformed the market.

“Maine is emerging as a leader in climate action,” Representative Margaret O’Neil, Democrat Saco who was the main sponsor of the bill, told her House colleagues last week. “Investments in fossil fuels pose a significant risk to our retirees and undermine our efforts to position Maine as a leader in the fight against climate change. “

A recent incident highlights how this volatility can affect MainePERS.

Private equity firm Arclight Partners LLC lost hundreds of millions of dollars it invested in a struggling U.S. Virgin Island oil refinery, Reuters reported. MainePERS had invested $ 150 million in an Arclight fund that lost more than a quarter of its value, Reuters said.

Matheson said investments are changing dramatically and those changes include a shift from fossil fuels to renewables.

“The investment opportunities of tomorrow are in green and renewable alternative energies,” said Matheson. “And that’s where I see our portfolio evolving naturally, without forcing it to do so.

Opponents of LD 99, who were largely but not exclusively on the Republican side of the aisle, warned of interference by the Legislature in MainePERS ‘financial decisions.

“It’s not up to us to tell a pension fund how to make its specialty, and its specialty is to invest,” said representative Bruce Bickford, R-Auburn. “That’s what they do. We don’t do that as a body. It’s not our role. It isn’t our role to pick winners and losers in business, either.

Other opponents, including representatives from the American Petroleum Institute, have also pointed out that some of the world’s largest oil and gas companies are investing heavily in renewables in recognition of the global transition from fossil fuels. Instead of withdrawing all investments in these companies, argued opponents, MainePERS and other investors could have a bigger impact by using their influence as shareholders to pressure companies to continue. on the path to renewable energies.

The bill is now directed to the governor for consideration. Mills can either sign the bill, allow it to become law without his signature, or veto it. Canceling a veto would require two-thirds of the votes in both houses of the Legislative Assembly – an outcome that seems unlikely given the votes on the bill.

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