Despite 2021 law, advocates say Maine’s pension fund isn’t fully divesting from fossil fuels

In summer 2021, Gov. Janet Mills signed LD 99, which Maine Beacon reports was viewed as a landmark measure making Maine the first state to commit through legislation to divesting from fossil fuel companies. The law requires the State Treasurer's Office and the Maine Public Employees Retirement System (MainePERS) to divest, and it bars the state from making additional fossil fuel investments. The deadline for divestment is 2026. Over two years after passage, climate advocates say implementation has stalled, because pension leaders argue full divestment would violate their fiduciary duty under the Maine Constitution to act in pension holders' best financial interests.

According to a January report by the pension system, 7.63% of MainePERS' holdings remain in fossil fuels. The memo described that share as "substantial" and "widespread," while noting the exposure resulted from efforts to balance returns against investment risk. The report said full divestment by 2026 would require disposing of significant existing investments and fundamental changes to the fund's investment approach. The state Attorney General's Office advised late last year that LD 99 does not require divestment "unless sound investment criteria and fiduciary obligations require such actions," though it added that the board should favor the option most consistent with LD 99 when criteria do not distinguish between options. MainePERS says its fossil fuel portfolio will likely decline significantly by 2026 as private market investments wind down and no new commitments to fossil-focused funds are expected. MainePERS CEO Rebecca Wyke declined to answer specific questions, directing Beacon to the January report as the "only information available at this time."

An appendix to the January report contains findings from New England Pension Consultants (NEPC), which offered an option that could reduce fossil fuel holdings to zero by 2026, though NEPC acknowledged it could result in a financial loss. A second option would reduce the allocation from 7.6% to 1.6%. NEPC also found that divesting public-market fossil fuel holdings would likely produce slightly higher long-term returns with somewhat more volatility, while MainePERS had argued that removing these holdings would reduce diversification and raise management fees. David Gibson, energy director at College of the Atlantic and a Sierra Club Maine executive committee member, said an analysis he examined indicates the pension would have $567 million more today had it divested public funds ten years ago. Advocates acknowledge private-market divestment would take longer, since no robust secondary market exists for the private equity funds holding fossil fuel assets, and they favor a compromise in which MainePERS makes no new fossil fuel investments and lets existing private funds wind down. Gibson noted that a policy requiring disclosure of fossil fuel exposure to the board is not the same as a commitment to no new investments. Advocates may pressure board members and could eventually pursue legal action to force the AG's Office to revise its recommendation.

IEEFA analysts also support divestment. Dan Cohn said IEEFA believes divestment could meet the fiduciary standard, while acknowledging the fund does not currently share that view. Cohn argued that fossil fuel stocks, which had a strong historical role in value creation, have underperformed since around 2014 and were at the bottom of market performance so far this year despite temporary oil price spikes after the pandemic and Russia's invasion of Ukraine. Connor Chung, a research associate at IEEFA, said viable divestment paths exist under the NEPC options and argued that "the greater fiduciary concern would arise from unquestioned continued exposure to fossil fuels." Momentum for divestment is broader, with nearly 1,600 institutions holding about $40.51 trillion in assets having committed to some form of fossil fuel divestment, including the University of Maine System.