“I had kind of just assumed… that the person in charge of the state money would not be in favor. But that wasn’t necessarily a fair assumption.”
Henry Beck, who has served as Maine’s treasurer since 2019, says he testified in support of the part of the legislation that covers his office because he believes curbing climate change “will take, in part, intentional government action with regard to the fossil fuel industry.”
Activists credit the support of Beck, Maine Rep. Maggie O’Neil and state Sen. Chloe Maxmin for making Maine the first state to require fossil fuel divestment by law.
Passed and signed by Maine’s governor in 2021, LD99 calls for the state’s permanent funds and its pension system, MainePERS, to divest from fossil fuel investments by 2026 and not reinvest going forward.
It prohibits both specific lists of publicly traded companies as well as any whose “core business” is in fossil fuel exploration, extraction, refining, processing or infrastructure. (A separate 2021 law also requires Maine to divest from private prisons.)
Other pension systems, including New York state’s, have made promises to divest from companies whose primary business drives planet-warming emissions, but are not required to by legislation. In 2015, California passed a law to remove public investments in thermal coal, but a move to extend that to all fossil fuel companies died in the Legislature this session.
MainePERS’ assets — about $18 billion at the end of the last fiscal year — are small in comparison to New York and California, but how they manage their legislative mandate will be closely watched as other states face calls for fossil fuel divestment and wider questions of dealing with climate risk in investing.
Leaders at the pension system stressed a key phrase in the legislation, that any MainePERS divestment decision will be made “in accordance with sound investment criteria and consistent with fiduciary obligations” — crucial to a state constitutional requirement to its pension members.
“While the legislation is very comprehensive, there is also essentially this carve out that makes clear that the constitution trumps whatever the law says, if there is a choice point,” Dr. Rebecca Wyke, MainePERS CEO, says.
Wyke, who became CEO after the law’s passage, says her approach is to find a way to “absolutely honor” the constitutional requirement within the divestment law. “And that path is not clear.”
Finding that clarity so far has included a divestment advisory panel made up of staff members, Wyke and the system’s general counsel, as well as three external members with divestment experience — not necessarily in fossil fuels. MainePERS declined to share the names of the outside experts.
That panel made a request for proposal to consultants to assess the impact of the law on MainePERS as well as a way to guide their decision-making. The $75,000 winning bid by Boston-based investment consultants NEPC cites its experience with a few clients who have taken up the divestment question.
What happens next, Wyke says, depends on what NEPC finds.
“We’re not saying we can’t forego investments in fossil fuels or private prisons or divest from those because it’s just too complex,” Wyke says, but adds trustees will continually have to make decisions on balancing the law’s goals with the constitutional requirement.
MainePERS Chief Investment Officer James Bennett estimates about $1.2 billion of the system’s total holdings are in fossil fuel investments, split evenly between publicly traded companies and private investments.
Liquidating private investments will be more complicated, he says. Many of the limited partnerships MainePERS is invested in include fossil fuel assets alongside other infrastructure investments and cannot be separated. They’d need to sell the whole thing, if it indeed is within the financial interest of members to do so.
“Where something might be valued at $100, we might have to sell it, seriously, I’m not exaggerating, at $85 or $80,” Bennett says, estimating that would mean hundreds of millions of dollars in value loss in the near term. “Or given that they’re fossil fuel assets, there’s a decent part of the universe that would not want to buy those from us.”
Divestment activists in Maine and across the country argue that investment in companies making climate change worse is also increasingly a poor financial choice for pension systems, especially over the long term.
“We believe this is best for pensioners, people and the planet,” Siegal says. “Especially because a common narrative is that it’s the economy versus the environment. And that simply isn’t true.”
Some pension funds have pushed back on divestment as an effective tool to cut emissions. CalPERS’ leaders in particular have repeatedly said they think engagement via proxy voting and other pressure on fossil fuel companies is better than selling.
“We will not have a seat at the table, and our seat will be taken by investors that may not have the same interest in long-term sustainability as CalPERS,” Danny Brown, chief of CalPERS’ Legislative Affairs Division, said at a recent board meeting.
Some of MainePERS’ fossil interests will age out on their own, Bennett says. About three years ago, the systems stopped new investments in private funds focused on fossil fuels. “Their managers are very good. But when commodity prices dropped, we got hurt,” Bennett says. “That will roll off the portfolio.”
Anna Siegal is waiting to see NEPC’s report, but in the meantime she and her fellow activists want more information publicly available on MainePERS’ progress. Overall, the whole process feels slow compared to the urgency of the climate crisis, she says.
“This isn’t necessarily a criticism on PERS, it’s more just a recognition that bureaucratic processes have been a big fueler of the climate crisis,” she says.
Beck’s office has a relatively simpler decision to make when implementing the law. The state treasurer’s office controls about $70 million, which has already been moved into ESG (environmental, social and governance) index funds. They’ll need to continue monitoring the composition of those funds, Beck says, acknowledging the ESG label could serve as “window-dressing.”
As other states consider what to do with their own pension plans and public funds, Beck suggests they consider all the things Maine did — the pros and cons of investor engagement, the acuteness of the climate crisis — as well as the specific fiduciary issues they’re grappling with now.
Taylor Kate Brown is an independent journalist focused on local and state climate action. She's previously worked for The San Francisco Chronicle and the BBC and publishes a weekly newsletter, The Planet You Save May Be Your Own.
