Fossil Fuel Divestment from State Pensions (S.42) - Feb 16

The Senate Government Operations Committee reviewed S.42 on Thursday, which would divest state pension funds from fossil fuel investments.

A number of people testified on the bill:

  • Thomas Golonka (Chair, Vermont Pension Investment Commission)
  • Eric Henry (Chief Investment Officer, Vermont Pension Investment Commission)
  • Gavin Boyles (Deputy Treasurer, Office of the State Treasurer)
  • Ashlynn Doyon (Director of Financial Literacy, Outreach, and Special Projects; Office of the State Treasurer)
  • Anna Petrini (Project Manager of the Employment, Labor, and Retirement Program; National Conference of State Legislatures)
  • David Provost (Executive Vice President, Office of Finance and Administration; Middlebury College)

Golonka lead off by highlighting that the Vermont Pension Investment Commission (VPIC) membership has expanded by two; a representative of the Vt. School Board Association and a representative from the League of Cities and Towns.

He proceeded to share a presentation with the Committee entitled ‘VPIC Climate Change Analysis.” While VPIC supports the state's climate change goals (achieving net-zero by 2050), they noted that divestment would result in increased costs associated with transaction and management fees, as well as performance losses from the inability to allocate to top tier private market investment strategies.

In 2022 fossil fuel accounted for 63% of electricity. Renewable power faces challenges due to intermittency, storage limitations, and technical losses, such that a green power grid would require significantly more generation capacity today to replace the same level of demand of the current grid. Renewables are seeing significant acceleration and are becoming more cost-competitive. Additional investment in infrastructure and technological advancements are needed to address the reliability issues. 

Divesting reduces the VPIC’s expected return, with a -0.50% decrease in their long-term expected return equates to a required contribution shortfall of $5M annually. Through 2038 an additional $750M in contributions would be needed. They also cautioned that divestment is ineffective. numerous studies have found that divestment campaigns produce no discernable impact on share prices or company valuation. Grinnell College found that divestment would introduce significant investment risk in the endowment while having little, if any, direct impact on climate change. A task force recommended the college "not divest from fossil fuel holdings" and instead "take actions to enhance existing ESG capabilities as well as the degree of shareholder engagement." This is known as Environmental, Social, and Governance (ESG) investing.

Three professors at Harvard, University of Chicago and U Di Trento found that, in a competitive world, divestment is less effective than engagement in pushing firms to act in "a socially responsible manner,” they pointed out that “there is no guarantee that divestment will achieve a desired social goal, while consistent badgering can.”

Next steps and conclusions:

  • VPIC will take action to advance the global goal to reduce emissions by 35% from 2010 levels by 2030, and reach ‘net zero’ by 2050.
  • Divestment is not consistent with VPIC’s fiduciary duty.
  • The commission will report progress annually toward its above pledge to reduce carbon and strive toward the global goal.
  • VPIC will continue to hold public companies accountable directly and through partnerships to reduce carbon emissions globally (0.7% of VPIC's portfolio ~ $40M is in fossil fuel companies).


The representatives from the Treasurer's office spoke next, saying they won't get into the struggle with balancing fiduciary obligations with the importance of this issue. They agreed that the direction of the industry is following what Golonka and VPIC suggested and using investments to leverage fossil fuel companies. The Treasurer is planning to introduce a new rule in a month or so that will require more robust climate control reporting.


Petrini spoke next about legislative trends around pensions, ESG integration, and fossil fuel divestment. She described a growing divide regarding integration of ESG factors in investment decision making. There is potential for stranded assets and regulatory risk from divestment and identifying targets can be tricky as energy companies transition to more sustainable types of production. There are also screening costs involved to determine how much carbon is tied to a company.

Maine’s fossil fuel divestiture act focused on the 200 publicly traded companies ‘with the largest fossil fuel reserves.”


Provost shared that when he arrived at Middlebury College they had reached net-zero mainly because of sugarloaf forest credits. The College has a long history of being environmental stewards with encouragement from students and teachers. The college has a biomethane pant and a solar project on campus. They made a commitment to reduce energy usage by 25%.  

In 2018 there was a change in the pooled investment funds which would allow an opt-out which gave the College more flexibility. This created a path forward to divest in fossil fuel holdings over time. By 2020 they got out of all public fossil fuel investments. It was as low as 2.7% of the portfolio but went back up to 3.7% in private equity because they did perform at a higher rate than the rest of the market. All this money is from Middlebury’s endowment fund and not from their retirement fund or index funds.   

The community is pleased with the investment strategies and the college received national attention for its efforts. It is a continuous journey, but it was really important to the college to not put the institution at a financial risk.



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