Lawmakers gave final approval this week to a bill directing Maine’s state government and pension fund to stop investing in fossil fuel companies as part of the global “divestment” movement in response to climate change.

But the sell-off of stocks or other investments in fossil fuels wouldn’t take place immediately – and may never happen entirely – because of a key clause that still gives broad latitude to the managers of Maine’s nearly $17 billion pension fund.

“Any plan that we come up with has to put the financial interests of our members first,” said Sandy Matheson, executive director of the Maine Public Employees Retirement System.

Thousands of institutions and governments around the world have committed to divesting an estimated $14 trillion from oil, coal, natural gas and other fossil fuel companies. While colleges and universities have been among the highest-profile divestment cases in the U.S. – including Maine’s Unity College, the nation’s first to announce a divestment plan, nearly a decade ago – several larger cities as well as New York state’s $226 billion pension fund have pledged to move away from fossil fuels.

If the Maine bill becomes law, Maine will be the first state where divestment is ordered by the state legislature.

The measure received final approval in the Democratic-controlled Maine Senate on Thursday on an 18-15 vote one week after the House voted 80-57 largely along party lines to approve the measure. Gov. Janet Mills, a Democrat, has yet to signal her position on the bill but has made addressing climate change a top priority of her administration.

Divestment advocates hailed the bill’s passage as a landmark moment that helps put Maine at the forefront (at least among state governments) of an international campaign that they say has solid ethical and financial footing. Youth climate activists, environmental groups and state retirees led the fight for the bill in Maine.

“As the Gulf of Maine keeps heating, so does the pressure on the fossil fuel industry: divesting sends a truly powerful message, and to have Augusta join in adds real weight,” Bill McKibben, an author, early advocate for divestment and c0-founder of the group 350.org, said in a statement after the House vote. “This action is a gift to the planet – and also to the pensioners of the Pine Tree State, freeing them from the money-losing investments in gas and oil that are also undercutting the landscape into which they will someday retire.”

The bill, L.D. 99, would require both Maine’s state treasurer and the board of the state pension fund, known as MainePERS, to divest from fossil fuels by January 2026. That process would include selling off any current holdings and not investing in specific types of companies that either hold fossil fuel reserves, operate coal-fired power plants, are involved in extraction or operate infrastructure used for fossil fuels.

Treasurer Henry Beck said the state’s “cash pool” investments are already fully compliant but that roughly 3 percent of $70 million in trust funds managed by his office are in energy companies. Beck, who supported the bill, called it “a bold law” that is consistent with the state’s climate goals.

According to analysis provided to lawmakers, roughly $1.2 billion, or 7.7 percent, of the $16.5 billion managed by MainePERS is invested in fossil fuel-related companies, including oil and gas companies as well as utilities as of Dec. 31, 2020. That is down from 9.2 percent a year earlier at MainePERS, which pays out roughly $90 million in benefits monthly to retired public employees and teachers.

But a legislative committee made a key change in response to concerns raised by MainePERS that the original version could have forced the organization to violate the Maine Constitution. Specifically, the amended bill will require divestment “in accordance with sound investment criteria and consistent with fiduciary obligations.”

In essence, that “fiduciary obligations” phrase means MainePERS cannot be forced to divest if it will hurt the pension fund’s finances. Matheson, the MainePERS executive director, said that language addition means the bill is now “consistent with the constitution” but a specific plan on how divestment would take place if the bill becomes law has yet to be developed.

“What it means is our primary fiduciary duty, under the Maine Constitution, is to act in the best financial interest of the members – so all of our decisions have to be in the best financial interests of the members,” Matheson said on Friday. “So we can’t wholesale divest when that would create loss for the fund.”

Cassie Cain, youth engagement coordinator with Maine Climate Action Now and 350 Maine, said Maine’s bill could provide a template for similar discussions underway in California, New Jersey, Massachusetts, Colorado and other states.

Cain acknowledged that the language change introduces some “gray area” in implementation of the bill. Her organization and others, however, will continue engaging with MainePERS officials on the issue, and will urge retirees and public employees who support divestment to keep pressure on their pension fund managers.

“If this is the price that has to be paid, having a bit more of an implementation (time) … that’s OK because this is still a very good precedent,” Cain said.

One of the many factors that MainePERS and other pension funds consider in investments is financial risk. And fossil fuel companies have their share of risk these days as government leaders, corporations and consumers commit to reducing planet-warming emissions.

According to a recent analysis by CarbonTracker, a think tank that analyzes the effects of the energy transition on capital markets, global investors lost $123 billion in share value in fossil fuel companies between 2012 and 2020. While those fossil fuel companies significantly underperformed the stock market as a whole during that period, shares for renewable or “cleantech” companies gained $77 billion and outperformed the market.

“Maine is establishing itself as a leader in climate action,” Rep. Margaret O’Neil, the Saco Democrat who was the lead sponsor of the bill, told her House colleagues last week. “Investments in fossil fuels pose a substantial risk to our retirees and compromise our efforts to position Maine as a leader in the fight against climate change.”

One recent incident underscores how that volatility can affect MainePERS.

The private equity firm Arclight Partners LLC lost hundreds of millions of dollars that it invested in an oil refinery in the U.S. Virgin Islands that had financial troubles, Reuters reported. MainePERS had invested $150 million in an Arclight fund that lost more than a quarter of its value, Reuters said.

Matheson said that investments are changing dramatically and those changes include a transition from fossil fuels toward renewable  energy.

“The investment opportunities of tomorrow are in green, renewable alternative energies,” Matheson said. “And that’s where I see our portfolio going naturally, without forcing it to do so.”

Opponents of L.D. 99, who were largely but not exclusively on the Republican side of the aisle, warned against the Legislature meddling in MainePERS’ financial decisions.

“It is not up to us to direct a pension fund how to do what their specialty is, and their specialty is investing,” said Rep. Bruce Bickford, R-Auburn. “That is what they do. We don’t do that as a body. It’s not our role. It’s not our role either to pick winners and losers in the business community.”

Other opponents, including representatives of the American Petroleum Institute, also pointed out that some of the world’s largest oil and gas companies are making major investments in renewable energy in recognition of the global transition away from fossil fuels. Instead of withdrawing all investment in such companies, opponents argued, MainePERS and other investors could have a bigger impact by using their influence as shareholders to pressure companies to continue down the renewable energy path.

The bill is now headed to the governor for consideration. Mills can either sign the bill into law, allow it to become law without her signature or veto it. Overriding a veto would require two-thirds votes in both chambers of the Legislature – an outcome that appears unlikely given the votes on the bill.

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