Maine became the first state to require the state’s employee pension fund to divest from fossil fuel-related stocks — a celebrated victory in environmentalists’ battle against carbon emissions and global warming.
But a report from the Maine Public Employee Retirement System (MPERS) suggests Maine’s public pension system will be profiting from fossil fuel stocks long after the 2026 deadline set by lawmakers.
That’s because Maine’s Constitution and laws taken together require MPERS to prioritize paying pensioners over left-wing climate goals.
MPERS Chief Executive Officer Rebecca M. Wyke said in an email lawmakers were clear in the original bill that the divestment directive would not override the fiduciary responsibility fund managers have.
“In Public Law 2021, c. 231, the 130th Legislature specifically conditioned its directive to divest on “accordance with sound investment criteria” and “consisten[cy] with fiduciary obligations”,” said Wyke.
“In doing so, the Legislature recognized the Board’s fiduciary obligations as trustees to administer the trust solely in the best financial interest of members as pension recipients,” she said.
In other words, the news shouldn’t be a surprise.
Maine’s Attorney General has confirmed MPERS’ interpretation of the law, stating in a letter that the fund is still required to place its fiduciary responsibility – i.e. that duty to make money – above the duty to cleanse its portfolio of hydrocarbon sins.
The AG’s letter stated that the divestment statutes reiterate, rather than modify, the MPERS’ fiduciary obligations. That means Maine’s public pension fund must continue to invest in and hold fossil fuel stocks if that’s the best way to get retirees paid.
In 2021, when Gov. Janet Mills signed the bill into a law, it was heralded as a first-in-the-nation effort to combat global warming. Other states, like New York, had made promises to divest from companies on the global warming naughty list, but Maine was the first to require it.
Whereas environmental activists envisioned a fossil free fund by 2026, with that money instead invested into wind turbines and solar panels, the reality is that MPERS will only have shed 1/3 of its fossil fuel-related investments by that date.
MPERS is under no obligation to achieve total divestment from the carbon-intensive energy sector if doing so would conflict with MPERS real job: making money.
Maine’s continued investments in fossil fuels, even beyond 2026, will be sour news for climate change activists who saw the divestment directive as something that might actually have a meaningful effect on carbon emissions.
Many of those who testified in favor of the bill seemed to believe that Maine lawmakers had the ability to lower global temperature averages. Some even said it was “morally wrong” to continue investing in fossil fuels.
Francesca Gundrum of Maine Conservative Voters implored lawmakers to consider the existential threat of the climate crisis.
“In order to keep warming below 2.7°C, the International Energy Agency calculates that the fossil fuel industry will need to leave at least 80% of their reserves of coal, oil, and gas unburned,” said Gundrum.
“In 2019, the UN’s International Panel on Climate Change determined that limiting warming to 1.5°C is necessary to prevent the most catastrophic losses associated with climate change,” she said.
There is scant scientific evidence that a divestment activity as small as called for by the Maine law would have any affect whatsoever on global greenhouse gas emissions, especially considering other major and unpredictable contributors to carbon emissions, such as solar activity, volcanos, and the destruction of the Nord Stream pipeline.
State Treasurer Henry Beck seemed to admit that the law would not actually have an impact on energy production in 2022, when skyrocketing energy prices placed the law under greater scrutiny.
After former Republican Gov. Paul LePage said he would repeal LD 99 if re-elected to a third term, Beck, a close ally of Mills, admitted to a TV reporter that the law hasn’t affected fossil fuel companies.
“I don’t believe it’s affected the large oil companies, the international oil companies, at all,” said Beck.
“As soon as we reallocated those funds, someone else bought them, and oil companies have been quite profitable in the past several years,” he said. “It took probably a few seconds for those stocks to switch over.”
At the time, Beck and the reporter interviewing him were attempting to downplay LePage’s criticism of the divestment directive amid a political campaign.
But Beck’s point suggests he and potentially others involved in managing Maine’s finances knew all along the move would not have any impact on emissions or the profitability of fossil fuel companies.
However, the environmentalists’ argument has generally been that Maine taking the first step makes it more likely that other states and even countries will follow suit. Then, if more people take similar steps, you might actually begin to decrease emissions, drive energy companies out of business, and achieve a global climate stasis.
Yet so far only Vermont and Oregon seem to be considering following Maine’s lead. And there’s no indication whatsoever that the People’s Republic of China, which is responsible for 27 percent of all carbon emissions and one-third of greenhouse gas emissions, will be reining in its emissions anytime soon.
While the law is unlikely to have an impact on carbon emissions, it has resulted in some new costs and busywork for MPERS.
MPERS’ Board of Trustees had already adopted a passive, index-based approach for public markets and a due diligence-based approach for private markets, including consideration of environmental, social, and governance (ESG) issues. In October 2021, the Board voted to maintain its current investment approach while directing staff to explore alternative strategies for avoiding fossil fuel investments.
In November 2021, a plan to engage a specialty consultant was approved to review the portfolio’s exposure to fossil fuels and evaluate investment implications from the divestment statute. A working group, comprising staff, MainePERS’ general consultant, and external investment professionals, developed a request for proposals (RFP) for the engagement.
Eventually, MPERS hired NEPC, formerly New England Pension Consultants, to advise on the funds approach to divestment.
A November 2022 report by NEPC revealed that MainePERS’ fossil fuel investments accounted for 7.63% of its holdings. That meant achieving a fossil fuel-free portfolio by 2026 would require disposing of significant existing investments and fundamentally changing MainePERS’ investment approach. All of those otherwise unnecessary transactions would come with costs.
The Board of Trustees is expected to modify the System’s Investment Policy Statement to acknowledge the divestment statute, require annual divestment reporting, and provide guidance on investments with fossil fuel exposure.
Most of MainePERS’ fossil fuel exposure lies in private market investments, particularly within the infrastructure and private equity asset classes.
According to the MPERS report, the portfolio’s exposure to fossil fuels is projected to decline by approximately one-third by 2026 — a far cry from what environmentalist’s had imagined would happen.
The clash between green idealism and reality may come for other parts of the Mills Administration’s environmentalist agenda as well.
Mills has pledged a series of elaborate green energy goals, with timelines seemingly plucked from thin air, including the goal of getting 100 percent of Maine’s electricity from renewable power by 2050. Mills has also said she wants to have more than 200,000 electric vehicles on Maine’s roads by 2030.
Both of those goals will come with their own practical considerations, as well as moral hazards.
Investigative reporting by the Maine Wire has found, for example, that a Mills-backed solar power project in Augusta purchased solar panels from a sub-contractor accused by the Biden Administration of exploiting forced labor in western China.
Other reporting has extensively documented the cost of human suffering involved in mining the rare earth metals required to make EV batteries.