BRATTLEBORO — Michael Pieciak, who won his race for state treasurer by visiting every town in the state, is settling nicely into his new job. He has his staff settled in and ready to go. But he's already feeling pressure.
Put it down to the environment. Vermont takes climate change very seriously, and there are many state-wide organizations fighting to make the state greener than green.
These include the Vermont chapter of the Sierra Club, the Vermont Natural Resources Council, the Vermont Public Interest Research Group, the Conservation Law Foundation, The Nature Conservancy, Audubon Vermont, 350Vermont, Third Act Vermont, Vermont Conservation Voters, Rights & Democracy, Vermont Businesses for Social Responsibility, and many others.
To these organizations and their supporters, it is shameful that Vermont, so environmentally friendly and sensitive, still has its pension fund money invested in fossil fuels. They want the state to divest and instead invest in renewable, clean energy.
The state's former treasurer, Beth Pearce, was cautious about the state doing so because she did not want to risk losing dividend income for pensioners. Pieciak feels the same way.
Now, spurred on by the environmental groups, a new bill is demanding immediate divestment.
The Fossil Fuel Divestment bill, introduced by Sen. Kesha Ram Hinsdale, D-Chittenden, and in the House by Rep. Gabrielle Stebbins, D-Burlington, would require the Vermont Pension Investment Commission (VPIC) to prepare a seven-year plan to divest the state employee pension funds from fossil-fuel companies. The bill is very similar to divestment legislation that Maine passed in 2021.
Many of the state's environmental organizations are mounting write-in campaigns to garner more support for the bill. They want divestment, and they want it now.
So when Pieciak, who grew up in Brattleboro, came to The Commons office a few weeks ago, he was asked about fossil fuel divestment. Already well aware of the issue, he was cautiously receptive to the idea. He agreed that U.S. reliance on fossil fuels, which cause climate change, is on the wane.
“You need to make sure you're managing your risk,” Pieciak said, noting the “significant risk” over the next 15 years or so to remain invested in fossil fuel stocks.
“Our economy is transitioning to a lower carbon economy; it's even more true in other parts of the world that are further ahead of us,” he said.
For example, he pointed out that General Motors has stated publicly that it plans to sell only zero-emission vehicles by 2035. Companies like Amazon, FedEx, PepsiCo, UPS, the City of New York, and even Domino's Pizza have electrified their fleets of delivery vehicles.
In contrast, the Ford Motor Company has not set an end date for making and selling gas-powered vehicles. While it has invested deeply in the manufacture of electric vehicles and batteries, the director of its gas-powered vehicle division has said they are in a growth business.
“Basically, by keeping a foot firmly in the internal combustion world, Ford is benefiting from customers who are losing access to gas-powered vehicles from other automakers even while Ford, itself, rolls out new EV models,” Peter Valdes-Dapena observed in a 2022 story posted at CNN Business.
And Jamie Dimon, CEO of JPMorgan Chase, a bank that heavily invests in the fossil fuel industry, said on CNBC that “if the lesson was learned from Ukraine, we need cheap, reliable, safe, secure energy, of which 80% comes from oil and gas. And that number's going to be very high for 10 or 20 years.”
Stepping away from fossil fuel
But Pieciak said he sees a growing trend to phase out fossil fuels.
“California is saying they won't allow the sale of them past a certain date,” Pieciak said. “And Vermont followed that line in the sand.”
In 2022, California passed a bill requiring all new cars, trucks, and SUVs to run on electricity or hydrogen by 2035. Vermont is one of 17 states that usually follow California's lead on tailpipe emissions standards.
“Some insurers and also some governments in the European Union are saying they will not insure fossil fuel exploration and extraction activities for corporations,” Pieciak said. Some companies, like Allianz and Fidelis, have announced more immediate underwriting protocols.
“So you can you can see the movement in terms of how, in the next 15 to 20 years, that industry is going to be radically transformed - not necessarily because of its own doing, but because of change in consumer behavior and government intervention,” Pieciak said.
One of the biggest drivers of this change will be governments pulling away from fossil fuel investments.
Vermont certainly has fossil fuel elements in its pension fund, Pieciak said, but it might not be so easy to detangle them from the rest of its investments.
“We're certainly invested,” he said. “The Vermont Pension Investment Commission makes the decisions around the pension investment. It doesn't hold directly any fossil fuel investments. But there are funds that invest in fossil fuel holdings. And there are index funds that Vermont invests in that contain fossil fuel holdings.”
The VPIC has a fiduciary responsibility to the state's pensioners. That means its legal and ethical responsibility to prudently protect the fund's assets overrides other criteria.
“The treasurer has only one voice on the Vermont Pension Investment Committee,” Pieciak said. “But how does the entire committee, and or the Legislature, if they're going to pass legislation, allow for the committee to be able to transition into a low-carbon or no-carbon portfolio?”
The answer, Pieciak said, is to go slowly. The Legislature is talking about seven years. Pieciak sees the process taking longer.
“I think you have to provide a 15-year window to do that,” he said.
“To do it more quickly is expensive to the fund and will impact your short-term investment opportunities and possibilities,” Pieciak explained. “That hurts the fund. It hurts teachers and state employees and people that are nearing retirement in terms of the fund getting even weaker in terms of its unfunded liability position.”
A slow and thoughtful exit
Divesting slowly and thoughtfully is the key in such a complex issue, Pieciak said.
“I think you have to account for the amount of time it will take,” he said. “You have to account for the fact that companies themselves may be transitioning. So Shell, in 10 years, might still have a component that's fossil fuel, but it might primarily be in renewable energy. And it's transitioning to having no fossil fuel component to its business.
“So if Vermont owns Shell in 10 years, is that a fossil fuel investment? Yes, because they're in fossil fuel. But as a company, they may be transitioning to completely green energy, and that might be an excellent investment for us to hold on to.”
Pieciak is asking for flexibility in his approach to the issue so he can hold such companies as an investment.
“So I think the timeline is important. I think the flexibility around exercising fiduciary duty is important. And if you want to make a statement that, at a future point, we will be out of fossil fuels, then - as long as we have time and flexibility - I think we can find a path forward,” he said.
“But you have to provide enough of a runway and enough flexibility to be able to get there,” he said, warning that doing otherwise would be expensive.
“It's always a cost/benefit, right?” Pieciek said. “If you wave the wand and get out now, it will be expensive because VPIC will have to hire more people to review the investments and make sure they are not holding fossil fuel. We will not be able to invest in certain index funds and certain private funds.”
“So that makes it more costly, because there'll be more investment management that has to happen to VPIC,” he said.
Beyond additional expenses to manage the state's investments, “it also means the investment returns won't be as great,” Pieciak said. “Not just because we won't be invested in fossil fuels. You won't be able to invest in the broad indexes, or these funds that make a pretty good return on their whole portfolio, because there's a piece of it that's fossil fuel.”
The number of green investment firms, which screen and rate companies for their environmental soundness, has been growing, but all stocks carry a certain amount of risk. Will investment returns be less or greater if the entire portfolio is green? That is still an unanswered question.
“So that's the challenge,” Pieciak said. “You immediately run into some significant headwinds in terms of the impact of the pension system.”
Personally, Pieciak said he believes the state should be doing everything in its power to combat climate change.
But, he observed, if Vermont moves its funds out of fossil fuel investments, “somebody else will purchase them.”
“There's no doubt our divestment will have a limited impact,” Pieciak said. “I see some value in Vermont making a statement, in recognizing the risk that a changing climate is bringing on.”