New Path Towards a Low-Carbon Future for the Vermont Pension Fund

 

No New Fossil Fuel Infrastructure October 2014On Thursday, February 8th, 2017, Treasurer Beth Pearce released a letter that details the combined findings of the Vermont Pension Investment Committee (VPIC) sub-committee on divestment so far and changes to make in the next few months. The recommendations in the letter are reflective of months of learning about the rapidly changing world of fossil fuel investments, fiduciary duty, and climate risk while hearing from panels of experts in the field, as well as a study by a third party facilitated by VPIC.

The work of the sub-committee has developed some creative and constructive climate risk mitigating policies which will have very real implications for a low-carbon future for the Vermont pension. The committee will condense their findings into final recommendations for VPIC on February 16th, 2017 to present to the whole committee on February 28th, 2017. Treasurer Pearce has recommended to her colleagues on the sub-committee the following recommendations which represent a broad shift for the pension fund away from fossil fuels and towards a low-carbon future.

  1.    Revise the fund’s Environmental, Social, and Governance (ESG) policy so that in every investment we make going forward, the state will consider the environmental and social implications of that investment. Our take: while the Vermont pension fund has previously had policies to guide their investment practices, they have not remained in step with the challenges of global climate change or the underlying risk associated with fossil fuel assets. Due to our efforts, those concerns have been brought to the forefront and will now be addressed.
  1.   The State Treasurer will work with other like-minded institutional investors to negotiate the creation of cheaper low-carbon market investment opportunities. Our take: there has been a long-standing debate about management fees for low-carbon market alternatives, resulting in them being dismissed as too costly, however, this is a creative solution to that debate. The committee may also create a similar vehicle that would be consistent with VPIC’s proxy voting policy.
  1.   The investment committee will make renewable energy and energy efficiency opportunities a distinct section of the investment portfolio. Our take: this distinction elevates the status and importance of industries creating the solutions to global climate change, and positions the Vermont fund to capitalize on a global transition to a low-carbon economy.  
  1.   The fund will work with the VPIC custodian or other third-party vendors on developing reporting tools for ESG factors to further the Vermont pension fund monitoring efforts as a means to adding overall value to the portfolio. Our take: time and again the sub-committee heard from experts that how companies score on Environmental, Social, and Governance policies is a reliable indicator of the risk or volatility of that investment. By more closely monitoring these factors, reporting, and revising fund policies the fund will be healthier and more profitable.  
  1.    VPIC should continue its dialogue with investment managers on climate change and ESG issues and prepare periodic updates in addition to regular updates by Treasury staff. Our take: this campaign has made VPIC rethink its investments, which has, in turn, has created a strong ripple effect and forced their investment managers to rethink their strategies which also affect their many other clients. Policy changes from our Pension Committee have forced investment managers to answer questions about and plan for low-carbon investing.

These creative solutions are the most recent products of much deliberation and collaboration between the State Treasurer, VPIC, and environmental activists. These recommendations put the Vermont pension fund on a path towards a low-carbon future and aligning our investment decisions with our state’s broader climate and energy goals. Our coalition remains committed to protecting our state’s pension fund from carbon risk and transitioning to a low-carbon future.

If you have any questions, feel free to reach out to Austin Robert Davis at austin@350vt.org or 802-370-0408