Since 2021, MainePERS, our state pension fund, has largely ignored the mandate of state law L.D. 99 to sell its fossil fuel-related investments. Perhaps MainePERS needs a lesson in baking. Managing a $19 billion+ investment portfolio like the one at MainePERS is like baking a fruitcake: you need many ingredients (types of investments) in the right combination (asset allocation). However, some ingredients are less appealing than others: those bits of fake, brightly colored fruit in fruitcake and fossil fuel investments in MainePERS’ portfolio.

Fortunately, substitutions are easy and effective. Just as the fake fruit can be replaced with real dried fruit or nuts, fossil fuel holdings can be replaced with a wide range of other investments. In both cases, the end results are superior. In fact, MainePERS’ fossil fuel investments, from now-worthless coal-fired power plants, to lagging ExxonMobil stock, have produced significant losses and little in the way of diversification benefits. They need to be replaced.

In a world with thousands of potential stock and investment fund options, MainePERS has many viable investment strategies that meet L.D. 99’s requirements and that are completely in-line with their fiduciary duty to beneficiaries. To start, MainePERS should follow a two-pronged approach:

1. Within their public market investments — basically stocks and bonds that are easily bought and sold — MainePERS can divest relatively quickly from fossil fuel holdings within the top 1,000 stocks and any direct fossil fuel-related bonds. Smaller stocks could follow. For both stocks and bonds, MainePERS largely follows broad market benchmarks where fossil fuel-related stocks and bonds constitute only a small portion. While this necessitates a very small increase in investment costs, these pale in comparison to the continued losses experienced from sticking with these public fossil fuel investments.

2. Within their private market investments — mostly private funds that own other assets — moving to a fossil fuel-free portfolio will take longer. MainePERS is correct in their assertion that these assets are not easily sold and that any forced sale would result in significant losses. Nobody wants this forced sale. However, MainePERS should commit to strict limits to avoid future fossil fuel investments and let current private investments run off. MainePERS’ current language of “not anticipating” any new fossil fuel investments is inadequate.

Importantly, MainePERS does not need to be told where to invest the proceeds from selling fossil fuel-related investments. The organization has highly skilled professionals and it is their job to make these decisions. Also, MainePERS’ investment portfolio is already moving with the economy and includes significant investments in many emerging sectors, including in established renewable energy projects.

But like a fruitcake with figs or raisins instead of fake fruit, it is now time for MainePERS to tweak the recipe to make their portfolio both legal and better for the environment.

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