The board that oversees the state’s $104.1 billion pension fund voted on Thursday to start using its shareholder power to pressure companies to act on climate change.
The Massachusetts Pension Reserves Investment Management Board, which is chaired by state Treasurer Deborah Goldberg, voted unanimously in support of the new guidelines, which essentially transform the pension fund’s managers into shareholder-activists. It asks them to vote against any directors of companies the fund is invested in if they don’t make a plan for keeping warming to 1.5 degrees Celsius, or hitting net-zero emissions by 2050.
The pension fund’s vote is an alternative to fossil fuel divestment, a step that several local and institutional funds have taken in recent years, and which the state of Maine moved to do this summer. Instead of pulling money out of any companies involved with the fossil fuel industry, the Massachusetts pension fund will try to transform the business practices of the companies it invests in from the inside, pressuring them to cut emissions and align with the goals of the Paris Climate Agreement.
“This vote not only benefits our retirees and taxpayers with its positive environmental outcomes, but has significant potential to increase our bottom line,” Goldberg said in a statement. “It is a more active approach toward achieving our financial goals while having a productive long-term impact on our changing climate.”
If a company the fund is invested in fails to deliver a plan aligned with the goal of limiting warming to 1.5 degrees Celsius, or it fails to make a plan for achieving net-zero emissions by 2050, the new directive would ask the fund’s directors to vote against the company’s board members. The message: Align yourself with ambitious climate goals or risk losing your spot on your company’s board.
There is some recent precedent for this kind of action. In May of last year, a small, activist hedge fund managed to unseat at least two Exxon Mobil Corp. board members in an attempt to force the company to align its business with fighting climate change.
In advance of the vote, the union SEIU Local 509 — which represents 20,000 health and human service workers and educators, including 8,000 state workers — wrote in support of the move.
“The extreme heat, dangerous storms, wildfires, floods, droughts and the rest affect all of us, but those with fewer resources and less power are impacted more, and it’s getting worse,” wrote union chair Kathleen Flanagan and president Peter MacKinnon. “We do not want our retirement funds used to further this destruction.”
To have a decent retirement, they wrote, they “need a livable world to retire in.”
In addition to the climate change proxy voting measure, the pension fund voted to create an environmental, social, and corporate governance committee composed of industry experts. The goal of the committee — which the board said was a first-in-nation effort — will be to focus on how to use the fund to promote worker safety, foster diversity, and fight climate change, while maintaining and growing the size of the fund.
Mary Cerulli, of the Boston-based group Climate Finance Action, has been working with Goldberg for years to help leverage the fund to fight climate change. “These voting guidelines are a great move for Massachusetts and other state treasurers and comptrollers should follow suit,” she said.
Mindy Lubber, the chief executive and president of Ceres, a Boston-based group that promotes climate action in the corporate world, said Thursday’s vote adds the Massachusetts pension fund to the group of shareholders that have put companies and their directors on notice “that if they fail to address climate change risks and implement climate practices and policies that will help bring about a transition to a net-zero emissions economy, those shareholders will hold them accountable.“