Fiduciary football over fossil fuels

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Feb 06, 2024 View in browser   By Jordan Wolman THE BIG IDEA The slower progress on fossil fuel divestment isn't because advocates aren't loud enough. | Keith Srakocic/AP Photo 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. AROUND THE NATION DISCLOSURE DEVELOPMENTS — Dominoes are starting to fall in the ongoing fight to compel corporate climate disclosure that’s now playing out across a variety of venues. The lawsuit filed last week by the U.S. Chamber of Commerce and a coalition of other business groups seeking to overturn California’s landmark disclosure laws is likely to reverberate well beyond the state. It sets up a significant legal fight over the state’s authority to set climate laws that go beyond federal rules, and some of the plaintiffs’ arguments around First Amendment violations could provide a preview for a future case targeting the Securities and Exchange Commission’s not-yet-finalized rules. Democrats in blue states looking to follow California’s lead offered mixed responses. State Sen. Joe Nguyen, the sponsor of Washington state’s disclosure bill, dialed back his legislation to merely study the issue, citing myriad challenges including legal risk. Meanwhile, the sponsor of a New York bill said in an interview that the lawsuit only emboldened his efforts to push the measure forward in Albany. Even without the Chamber lawsuit, other challenges have started to stack up against California’s laws. Gov. Gavin Newsom didn’t fund the air resources board’s implementation this year amid a larger historic budget deficit, and California’s Chamber of Commerce continuing its push for “cleanup” legislation. BUILDING BLOCKS BIG BREAKTHROUGH — A startup backed by Bill Gates could begin operations by the end of the week at what could become the world’s largest carbon removal facility, Corbin Hiar reports for POLITICO’s E&E News. The Graphyte plant in southern Arkansas will take carbon-rich sawdust and other waste from nearby paper mills to create biomass bricks that can be stored below the surface for centuries. From there, the company will scale up production throughout the year, expecting to bury enough bio-bricks to remove 15,000 metric tons of carbon dioxide with plans to remove an additional 50,000 tons in 2025. Others could be hot on their tail as the field continues to grow. Charm Industrial has delivered the most verified carbon removal to date, and Climeworks and Heirloom Carbon Technologies are collaborating on a direct air capture hub subsidized by the Energy Department. Occidental Petroleum is also splurging, investing $1.1 billion direct air capture facility expected to begin operations next year. YOU TELL US GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. Join us every Tuesday as we keep you in the loop on the world of sustainability. Team Sustainability is editor Greg Mott and reporters Jordan Wolman and Allison Prang. Reach us all at gmott@politico.com, jwolman@politico.com and aprang@politico.com. Sign up for the Long Game. It's free! WHAT WE'RE CLICKING — Hybrid pioneer Toyota is reaping the benefits of sitting out the auto industry's all-in rush to build electric vehicles, the Wall Street Journal report. — Chinese companies are playing a substantial role in boosting U.S. domestic capacity for producing solar panels. The Wall Street Journal explains. — Cork is making a comeback as an alternative to plastics and other materials made from fossil fuels. The Washington Post has that story.   Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Jordan Wolman @jordanwolman Allison Prang @AllisonPrang   Follow us

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