BACK AT IT — Efforts to compel public pension funds to divest fossil fuel investments are still simmering in blue states with a slate of bills under consideration this year. But even in liberal bastions like California, Oregon and Vermont activists are facing uphill battles and slowed progress. Even in states where divestment advocates have seen success, they’re still finding themselves on defense: The pension fund in Maine, the only state with a law mandating full fossil fuel divestment, recently warned about the costs and complications of complying, and New York Comptroller Tom DiNapoli’s review of fossil fuel holdings is still ongoing 16 months later. Fiduciary heavyweights opposed to blanket divestment for fear of reduced returns and the loss of influence over corporate policies are personally getting involved — and exerting their influence — to avoid what they believe would be a major policy error. “I think our position does resonate well with many of the lawmakers,” said California Public Employees Retirement System CEO Marcie Frost, who leads the country’s largest pension fund and opposes a divestment bill in Sacramento. “Because this topic is so important to the investment team, is so important to the board and subsequently so important for our 2 million members, that it is something that I get directly involved in. I will meet with legislators. I will share why we think our plan will work, and they can hold us accountable to this plan.” Underlying the tension between pension funds and advocates on this issue is disagreement over the meaning of fiduciary duty, the legal obligation to act in the best financial interest of people whose money is being managed. Divestment advocates argue that it’s within the fiduciary duty of pension funds to get rid of investments that fuel climate change, while fund managers contend that they are obliged to seek the best financial returns and that divestment would eliminate their ability to influence corporate policy on issues like climate change. The weaponization of the term fiduciary duty has steadily grown in the last few years — and cuts both ways in the broader war over environmental, social and governance policy. Anti-ESG advocates are leaning on their interpretation to pressure states to untangle business ties with Wall Street firms like BlackRock. A group of right-wing state lawmakers adopted a model policy in 2022 that “strengthens fiduciary rules to protect pensioners from politically driven investment strategies.” The resistance on the part of some fiduciaries to the fossil fuel divestment campaign in particular amounts to a stymieing “middle ground” position. “Absolutely, this is a middle ground that’s tough to crack,” said Amy Gray, associate climate finance director at Stand.earth. “It’s hard to bridge. Rather than being like, ‘I'm going to tell you who you're going to invest in,’ I explain the moral case and the health case and the reasons why fossil fuels have to be phased down is dire for every single person that lives on this planet. At the same time, I think there's a case to be made for redefining fiduciary duty.” It’s not that the movement hasn’t secured any victories. Maine’s divestment law is a landmark statute. Divestment by universities and other private-sector players has ballooned. And New York City divested from fossil fuels — though a lawsuit challenging the impact of that action on retirees’ returns poses a potential new legal risk for the movement. At the same time, it’s clear that advocates are reckoning with their strategy. A new bill in Oregon this year would require the state to divest from coal, a narrower measure than past bills pushing for full fossil fuel divestment. “We have to make sure that the bill matches the session, and our session is just five weeks long,” said state Rep. Khanh Pham, an Oregon Democrat sponsoring the bill. “And so we wanted to make sure that we could really take a positive step forward that was realistic given the time constraints and the political constraints.” As the movement continues to unfold with over a half dozen bills this year, Frost said ESG has become a “political football.” “If everyone's mad at us, we probably have the right balance,” she said.
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