Report gives Maine’s pension system failing grade for climate-related investment votes

A national report released last month gave Maine’s pension system a failing grade for its climate-related proxy votes and guidelines, which environmental groups say are important tools for holding companies accountable. 

The report was put together by the Sierra Club, Stand.earth and Stop the Money Pipeline. The researchers analyzed 19 state pension funds (and the systems in New York City) in places where officials have said having sustainable investments and protecting investments from the risks posed by climate change are priorities.  

Pension systems were evaluated on three metrics: their proxy voting guidelines, their actual record on climate-related proxy votes at certain financial institutions in 2023, and their data transparency. 

Proxy voting guidelines signal the priorities of an investor — such as a pension system — when it comes to corporate governance of the companies they’re invested in, the report states. As such, the study evaluated funds based on how much their guidelines explicitly prioritize addressing the financial risks posed by climate change. 

Proxy votes are the votes cast by a pension system in a company they’re invested in. The more shares a pension system holds in a company, the more votes it gets in operations and governance decisions. 

The report analyzed climate-related proxy votes pension systems took at Citigroup, Wells Fargo, JP Morgan Chase, Goldman Sachs, Morgan Stanley and Bank of America. The financial industry was evaluated because U.S. banks are significant financiers of the fossil fuel industry and fossil fuels are the primary drivers of climate change.   

While the Maine Public Employees Retirement System (MainePERS) received an A+ for transparency, the report gave it an F for both its guidelines and actual votes taken. As those two factors were more heavily weighted — particularly the voting guidelines aspect — the $19 billion fund received an overall grade of F in the report. 

Pension systems in Wisconsin, Colorado, New Mexico, Illinois and Nevada also received failing grades while three of New York City’s five pension systems garnered grades of A-minus, the highest mark given. 

Allie Lindstrom, senior campaign strategist at the Sierra Club and the lead researcher on the report, said MainePERS received a low score because the pension system doesn’t have very detailed climate considerations in its proxy voting guidelines beyond a brief mention of the importance of environmental, social and governance (ESG) practices. ESG investing seeks to put money in companies that safeguard the environment, have a positive social impact, and engage in responsive and ethical governance. 

“They’re missing language on what types of climate-related mitigations they’ll support, how they’re holding directors accountable for mitigating climate risk and they don’t have any language on biodiversity risk or Indigenous [people’s] risk,” Lindstrom said. 

On their voting record, MainePERS failed to support any of the 2023 resolutions at the specific banks calling for the institutions to phase out support for fossil fuel-connected companies. The pension system also didn’t support votes pushing for climate action at financial institutions themselves or resolutions advocating for emission reduction goals. Of the overall environmental-related votes evaluated in the report, MainePERS only supported one resolution (related to disclosing lobbying on climate issues). 

Lindstrom said a pension’s voting record matters. 

“Climate change poses a systemic risk to the economy,” she said. “It is part of public pension managers’ fiduciary duty to manage that threat and to ensure that they can meet their obligations for decades to come. And proxy voting is a really critical way to hold companies accountable for climate destructive behavior.”  

MainePERS did not provide specific answers to a list of questions from Morning Star asking for the system’s response to the report and whether its proxy voting guidelines take climate change into consideration. Instead, pension system CEO Rebecca Wyke provided a December 2023 MainePERS report about the system’s ESG practices and proxy voting philosophy.

In that report, MainePERS wrote that in its proxy votes — which the system takes over 10,000 of each year — it will vote “in the best interests of its members as pension beneficiaries.” 

That means pushing for good stewardship by companies MainePERS is invested in through supporting policies that maximize businesses’ value for shareholders while also balancing long-term focuses with short-term challenges, according to the report. MainePERS also mentions that effective stewardship includes “responsibility to the environment” and that it “encourages appropriate governance and ESG practices” through its proxy votes. But the system in that report doesn’t cite specific climate change-related considerations it takes into account in proxy voting. 

Suggested reforms to proxy voting 

The environmental groups’ report outlines a number of recommended improvements for pension systems such as MainePERS that scored poorly. Those include updating their proxy voting guidelines to ensure they specifically address the financial risks posed by climate change along with engaging fund asset managers and advisors on that issue. 

The report also called for financial officers — such as the state treasurer — to support policies that manage climate-related risks to investments and for pension systems to join the Net Zero Asset Owner Alliance, which would commit funds to a net-zero investment portfolio by 2050.  

Cassie Cain, a climate finance campaigner at Stand.earth and past member of Maine Youth for Climate Justice, said implementing those recommendations would demonstrate MainePERS’ commitment to protecting pension holders over the long-term. 

“They hold a lot of power in that they should be making the best investment decisions for Maine’s public employees and using that to influence these companies to do things that will leave a better future and a liveable future for folks who are retiring or would like to retire,” Cain said. 

Cain added that implementing the recommendations could be a step on the journey to fully divesting from fossil fuels, which MainePERS is required to do by 2026 per a law passed in 2021.

Proponents of divestment said last year that getting that law implemented has been a struggle. At that time, they said MainePERS hadn’t taken the steps needed to divest fully under the stipulations of the law because system officials say it would violate their fiduciary duty, which mandates that the fund act in the best financial interests of pension holders. Environmental groups dispute the system’s fiduciary duty claim and say fossil fuels are a risky investment bet as the climate crisis escalates.  

As of June, 6.5% of the pension’s assets were in fossil fuel holdings, a decrease from 7.8% in the 2022 fiscal year.  

Cain said one argument against divestment has been that remaining invested and getting proxy votes on company governance allows pension systems like MainePERS to use their influence to push for responsible practices on issues like climate change. But Cain said the proxy voting report shows MainePERS doesn’t have a good track record on that issue.

“That’s been an argument: We need to stay invested so we can change these companies’ practices and encourage better behavior. But they’re not doing that as seen in this report,” she said.  

For Anna Siegel, advocacy director of Maine Youth Action and a member of Maine Youth for Climate Justice, the report is continued evidence of the importance of applying pressure to systems like MainePERS. Siegel, a member of the coalition that pushed for the 2021 divestment bill, said such systems need to be held accountable to ensure they are not propping up fossil fuel companies and are protecting pension holders’ investments from an increasingly volatile industry. 

“It is imperative for citizens and pensioners and financial experts and young and adult activists alike — such as the folks who have been working on fossil fuel divestment for years now — to continue doing this work,” she said.

“We’re seeing that the systems need our influence and our pressure and this report only underscores that,” Siegel added.