A group of legislators are calling on Minnesota's pension fund managers to dump their stocks in coal, oil and natural gas, saying fossil fuel companies harm the environment and are a financially risky investment.
Sen. Sandy Pappas, DFL-St. Paul, and Rep. Melissa Hortman, DFL-Brooklyn Park, are introducing legislation to direct the State Board of Investment to research the feasibility of ending investment in fossil fuel firms.
The legislators join a growing movement of political leaders from New York to California who want public investment funds to force companies to address concerns over climate change and promote cleaner energy.
Investment of public pension funds in stocks for reasons other than profit can be controversial because investors are under immense pressure to ensure the funds can pay billions of dollars in retiree benefits. Minnesota is one of many states that rely on higher rates of return on its pension investments, though recently reduced that figure from 8.5 percent to 8 percent a year for some of its retirement funds.
Advocates of the legislation argue that fossil fuels are a poor investment at a time when countries around the world are trying to commit to cleaner energy sources.
"There's the climate issues, but there's also just prudent investing," Hortman said. "We know, for example, that fracking caused the coal industry to decline in prices. We know there's a glut of oil on the world market. And we know throughout history that the only thing we can predict about natural gas prices is that they are unpredictable."
Critics see such measures as political overreach into complex and high-stakes investing.
Alicia Munnell, director of Boston College's Center for Retirement Research, said the intrusion by legislators with various political agendas "is not helpful."
Backers of the legislation said that Minnesota's pension funds have invested $2 billion in the top 200 publicly traded fossil fuel and energy-related companies, including Exxon and Mitsubishi. They noted the large decline in coal stocks and some economist predictions that more than one-third of independent oil and gas companies are at high risk of bankruptcy this year.
"I want my pension dollars to support companies that care about our planet and that support a more sustainable future," said Dagmar Romano, a retired state employee who is joining with the legislators and advocacy groups to promote the proposal.
Minnesota is already getting rid of some its stocks in oil and gas companies, but not because they're in the fossil fuel industry. Minnesota, like many states, also has a law that it must divest its pension fund holdings in companies that do business with Iran — a prohibition that disproportionately affects energy companies.
Citing concerns about climate change, two dozen New York legislators in February called for the state to sell its holdings in fossil fuel companies. New York City Mayor Bill DeBlasio is urging city pension funds to adapt a similar measure. Massachusetts and Vermont have also debated a fossil fuel divestment measures.
California last year passed a law prohibiting its two largest pension funds from making new investments in coal companies or renewing existing ones. But that doesn't mean the retirement funds are immediately dumping their coal stocks.
Instead, they're required to "constructively engage" with the companies to establish whether they are transitioning their business models to clean energy. A spokeswoman for one fund, CalPERS (California Public Employees' Retirement System), said it does not have to divest in a coal company if officials are satisfied with the company's transition plans to clean energy.