Vermont is currently evaluating whether or not to divest its pension plan from holdings in the fossil fuels industry. This report reviews the crucial elements behind the decision to divest. It addresses the legal and fiduciary impacts that frame the decision to divest, as well as the possible effects on CO2 emissions and fossil fuel industries. Following these considerations, it concludes with a discussion of divestment strategies. Ultimately we find that the decision to divest is heavily constrained by laws governing fiduciary duty. For divestment to proceed, current law states that any pension changes must have a positive or neutral effect on the financial health of the pension portfolio.
After a brief review of the history of the divestment movement, the report considers the importance of fiduciary duty and its implications for the divestment movement. The report then outlines the three major possible financial impacts of divestment: the diversity penalty, transaction costs, and avoidance of the carbon bubble. The first two will likely have a negative impact on the portfolio while the latter will likely have a positive impact. The range of academic research on these implications is presented to help lawmakers make informed decisions on the relative weight of each. Divestment efficacy is then addressed after considering the financial impacts in the decision-making process. Divestment is determined to be most efficacious in its ability to stigmatize the fossil fuel industry by generating considerable media attention. The report concludes with a discussion of divestment strategies.