AUGUSTA, Maine — Nearly five years ago, Maine passed a first-in-the-nation law requiring the state pension system to divest from fossil fuels. Thursday was the deadline to do it.
Yet roughly $1.15 billion was still invested in the sector as of December. It has long been clear that the Maine Public Employees Retirement System wasn’t going to meet the deadline. The agency has cited a part of the law that requires it to divest while meeting its “fiduciary obligations” to current and future retirees.
The state’s interpretation has been criticized by climate groups. The episode shows the slow progress of a law hailed by progressive activists when Gov. Janet Mills signed it into law in 2021. Its effect on the pension system that serves nearly 1 in 13 Mainers has been muted.
“The law requires the system to divest, and they have not taken meaningful action,” said former state Rep. Maggie O’Neil, D-Saco, who sponsored the law.
The 2021 law was part of an environmental movement to push institutions to get out of the fossil fuel sector. Many of those efforts have been focused on college campuses. The former Unity College was the first higher education institution to divest its endowment in 2012. Bowdoin College’s refusal to do so sparked a petition and protests in the ensuing years.
Many institutions have treated direct and indirect investments differently. For example, the University of Maine agreed in 2022 to get rid of direct investments in fossil fuel companies within a month. It set an eight-year target to phase out indirect ones in the sector, such as mutual funds and other ones in which companies are commingled.
Maine’s pension system made its last investments focused on the fossil fuel sector in 2017. The share of money in the sector has naturally declined since then. In 2020, 8.1% of the system’s investments were exposed to the sector. It now sits at 5.4% and is expected to be under 4% by 2026, according to a MainePERS report presented to lawmakers in December.
Getting out of fossil fuels at once would be costly, the agency argues. For example, roughly $600 million in investments in the sector are spread between $2.9 million in partnerships. Maine would likely have to sell out of those funds at a discount of $400 million, the report says. The state has investments in Exxon-Mobil and companies that operate in both fossil fuel and renewables.
Debate around the bill in 2021 was colored by an informal opinion by Attorney General Aaron Frey that an early version was unconstitutional because it dictated how retirement funds were to be used. The following year, Frey’s office told the retirement system that the law did not require it to divest in certain areas unless it was part of a sound investment strategy.
The Maine Public Employees Retirement System is following the attorney general’s advice, CEO Rebecca Wyke noted in an email. The independent state agency stood by its passive strategy to reduce fossil fuel investments after a protest by climate activists last summer.
The measure was championed by environmental groups including the Sierra Club and Maine Conservation Voters. A youth activist who backed the bill testified in 2021 that this year’s deadline was aimed at urgently addressing climate change. O’Neil noted Maine’s failed 2021 investment in a Caribbean oil refinery as reason to shield retirees from risk.
The pension system remains in good shape by national standards. A 2011 budget championed by former Republican Gov. Paul LePage sharply improved its standing through cutbacks that the state employees union has criticized ever since. Maine funded 83% of its liabilities as of 2019, good for 13th among states, according to the Tax Foundation.
But the system is still a worry for lawmakers. Rep. Jack Ducharme of Madison, a top Republican member of the budget committee, noted there is still a $1 billion gap between promised benefits and assets ahead of a constitutional requirement in 2028 to close the gulf.
“Their responsibility is not the politics,” he said of the system, criticizing the Democratic-backed law. “Their responsibility is to make money.”