 So here we are back in Senate government operations on February 1st, after a short break, we are going to be looking at S-251, which is a bill about divestiture from fossil fuel companies. And so Becky, if you would like to walk us through, and then we have with us the Treasurer and Tom Galanca, who is the chair of the Vermont Pension Investment Commission. So Becky. Thanks, Becky Wasserman, Legislative Council. So S-251 is an act relating to the divestment of state pension funds from fossil fuel companies. So overview is that this bill is essentially prohibiting by July of 2025. The Pension Investment Commission from investing in companies that have certain companies in an index that have fossil fuel reserves. And there is also a transition period from now until July 2025 to sort of stop making those investments and divest from the current, from companies that currently meet that criteria. On the point of the Pension Investment Commission, that name was changed last session and I've noticed two places in this bill where it still says committee. So I will highlight that, but that would need to be updated. Apologies for that. So section one of the bill is amending the Vermont Pension Investment Commission definition section. So just moving on to page two of the bill. Sorry, page three of the bill. So there's a bunch of definitions. Line one through five is a definition of fossil fuel. So this definition, I had looked through statute and I could not find another definition. There's one of liquid fossil fuels. So this definition was sort of put together based on some consultation with another attorney in our office and what was in statute. So I just wanted to note where that came from, but fossil fuel means an energy source formed in the Earth's crust from decayed organic material. This is a non-exhaustive list, but it says the term includes petroleum, coal, natural gas, heating oils, light and heavy diesel oils, oil, motor or gasoline, propane, butane, residential fuel oils, kerosene and aviation fuels, and it excludes biodiesel. Section two of the bill is amending the duties of the Vermont Pension Investment Commission. And it is adding on page four, a new duty in subsection I, which says that notwithstanding the commission's ability to make investments on behalf of the state retirement systems and the teacher system, the commission shall not invest the assets of the teacher's retirement system, the state employee's retirement system and the municipal employee's retirement system and the 200 publicly traded coal and oil and gas companies that hold reported fossil fuel reserves with the largest potential carbon emissions as ranked by FFI solutions. So that ranking is coming from an advisory firm that has created an index of those top 200 companies. So that is what that is referencing. So the language is putting a cross-reference in there to an index for determining how to decide what can and can't be invested in. And you'll get to this at the end of the bill, but section one and section two, so that definition and the prohibition on investments are not effective until July 2025, July 1st, 2025. So that's when that prohibition would go into effect. Section three of the bill is session law and that is kind of creating this transition period and this is effective upon July 1st, 2022, so this year. So this is creating a three-year transition period that says, and on line 14, it says the committee, it should say the commission. Shall not make new or additional investments or renew existing investments in any of those companies on that index that of those 200 publicly traded coal and oil and gas companies on that index. And also, during that time period, divest the assets from the three retirement systems from any interest in the companies on that list. And then section four, as I mentioned, the effective date. So sections one and two, the prohibition starts in July 25 and then the transition period starts July 1st of this year. Any questions of clarification for Becky? Sounds pretty straightforward. Thank you, Becky. I guess we'll jump to who would like to join us first year. Tom, Beth. Madam chair. Yes. Hi, Allison here. I just would like to say as the lead sponsor of this bill, I just, you know, we've been around this bed with Beth for quite a number of years. I think 2011, we had a bill with Kasia and Chris and I in the house and a bunch of others. It just struck us that at this point in time, given the enormous investment we've made with the global warming solutions act and with our climate action plan now in place that really this is an issue that we need to be. And I'm very eager to hear how the VPIC has addressed this because we had promises in 2017 that they would be dealing with it more aggressively. And so I'm quite excited to hear what they, what their update is on that, but it just struck us all that this is a perfect compliment to all the work we're doing with the climate action plan. And it just, it's, it's a piece that Senate government operations could contribute to that. So it, that that's in large measure why we're here. Thank you. Thank you for that. The stage for us. So. Yeah. Yes. I would volunteer Tom DeLonco to start. Okay. I see that Senator Rom Hensel, did you have a question? I just wanted to add a comment as a past and current sponsor of the bill, which is that it would be really nice in the testimony today to hear about outcomes more than actions. As much as if not more than actions, what the out outcomes of shareholder activities or things like that have been. Because I think the emphasis really is on having an impact before we experienced climate failure. Yeah. Oh, thank you. Thank you. All right. So since you've been volunteered to go first, Tom, would you like to join us? Thanks, Madam Chair. You know, I appreciate the opportunity. You know, obviously we'd love to come back as well to discuss act 75 and the tremendous amount of work that's been done since we last met last summer in implementing act 75. So I'd love to give an opportunity to update on that, but I don't, this isn't that time, but I'd love to have that opportunity with Eric to do that as well. I believe, I believe that there is a potential. For having a joint meeting with institutions because they around that. That'd be great. You know, this is the first year of this experiment and moving to an independent entity. So there's been a lot of moving parts. I think it's really helpful for both Seneca of ops, as well as house of ops and the new pension investment joint committee to really weigh in on how we're proceeding. And I've had tremendous support both from the treasurer's office, as well as from the governor's office in regards to creation of a new budget and to setting us on this path. We submitted our annual report as well as submitted our independent report for governance study. A couple of weeks ago. So they're lengthy. And I would be honored to explain those and bring to bring forth that to this committee as well. But today in regards to divestment, and I was part of the discussion because I started as chair January one, I think in 2016. And I proceeded to go for someone announced the divestment from Exxon oil. So I know it very well. And I've been intimately involved with Beth. On this process, particularly to emphasize active engagement and proxy voting, as well as. At the same time, not, not jeopardizing the pension trust in and of itself because of our small size and our limited scope and scale in the state of Vermont. So last week at our VPIC meeting, we did have a brief discussion on this. And since that time, I have since followed up with all VPIC members. So I have a general idea of VPIC consensus. And I tried to put that down in a, in a, in a, in a, in a, in a, in a, in a, in a PowerPoint presentation. And I can, we don't need to go to a share screen unless you want, but I can explain each page or go through one by one. And that, that I think could be helpful to sort of frame the discussion. In concerns. And specific comments on the current bill as it's written. And then we can go from there. Whatever you prefer. I could leave it over open dialogue and just sort of visually explain each page one by one, or we could raise it as a, as a, as a, as a, as a, as a discussion. And then we can sort of visually explain each page one by one, or we could raise it as a outline. Thank you. I think that we normally don't use. Okay. Screen share when we go through bills, because we all have access to them and we do have access to this, but I think that in this case, because you're basing your, your presentation on them, committee. Would you be amenable to having, having Tom do a screen share here and put up this. If you want. Either way. Okay. Okay, great. Let me see if I'm able to run. I don't know how this works at Paul. Thank you, co-host. Yeah. Yeah. Could you make the co-host and I can share the screen and then we can go through the different. Slides that I put together basically to summarize what. We envision as issues. In regards to divestment, timing, potential alternatives as well as the specific language of the bill. Sorry. While we're doing that, Tom, is, is your memo the staff comments on provisions or is it? No. My memo would be the divestments. The staff comments. I asked Eric last week to basically summarize a couple of things. One to give me an estimate on the exposure to this list of stocks based on this, FFI solutions that was indicated in the bill. And so I asked Eric to give me an idea of what this would entail both from a staff perspective, as well as the amount of funds that we're actually looking at, particularly in the index funds that we have and as well as some of the separately managed accounts. And secondly, I asked him to give me a summary of what they've been doing over the past couple of years to summarize for you. Action items that we have taken as part of our proxy voting, as well as our to get back to center roms. Hinsdale questions in regards to what has been done. In the meantime, what we've done also is we set up a subcommittee of the new independent commission to really identify the pic and we've chair and Beth can explain this more because she's been elected chair of our subcommittee. And so she will be in charge of the policy direction as well as implementation of a lot of our ESG policies going forward. It doesn't seem to let me sharing the screen. We have it on our device. We have your. Okay, you have it on as well. Okay. So I just, I don't see it here, but I'll go through what I, what I've talked to the board members sort of from page one is the discussion agenda issues that came up from board members. As I was discussing this and as it was presented in, in Senate 251. And there's really eight different issues that I think I wanted to address with you today, because I think they're significant and they really go to process and collaboration with the pic because I'm always open to working with the legislature as well as the joint pension commission, as well as interested parties. And I think that was evident back in 2016 when we set up that group, I think it came up with a lot of good solutions. Vermont is not in a vacuum in this space. I think there's a lot of different players out there. We aren't big enough to really affect immediate change. However, we can affect individual change by our power of collaboration and support amongst our fellow institutional shareholders. The first issue I really want to go to is the discussion on FFI solutions. And I know it's been highlighted here as an index, but it really is not an established index in the open markets. This is a product that is proprietary. You go to your website and you cannot get this list without paying a subscription fee. So I classify FFI solutions more as a specific vendor. And one of my comments in regards to legislation is I don't think it's appropriate for a state statute to have language of any designated specific vendor. I think specifically that would violate our VPIC policies on manager selection. It would violate our policies on RFP regulations. It would also infringe on our ESG and investment policies. And I think it's bad policy to name a vendor, particularly in any legislation. If you look at the main legislation in this regard, they did not list any specific vendors. They strictly identified divestment, they identified the issue and directed the main plan to implement an action in that respect. I also think listing FFI solutions, regardless of their quality, it may be one that VPIC would look into, it diminishes VPIC's negotiating power in order to work with a vendor. And I think that would really form a fiduciary conflict between VPIC and this current legislation. So I strongly recommend you strike any name of vendor in any future legislation. The second aspect is in regards to fiduciary responsibility. And I bring up this because we really as a, as a, as a board, we really have to have this as a underlying driving force in regards to managing the pension assets of the state of Vermont. And so having legislation and then having a fiduciary standard, sometimes they come into conflict. And I think we need to have a way or some way. And I don't, I'm really throwing this issue out there. How do we handle a conflict of this nature where VPIC may consider a fiduciary breach, whereas there's in statute certain specific prescriptions that we would need to follow. And I think there needs to be some clarity in this in regard to what we're talking about. I go back to Maine's proposal and in Maine's proposal, they had a simple statement in there where they said, let's see, the treasurer of state shall in accordance with sound investment criteria and consistent with fiduciary obligations divest. And so Maine's gotten around this by actually listing the fiduciary standard as sort of a superior law as it were in regards to what VPIC board should look at. And I think you're really seriously need to consider something like that in any future legislation that considers any type of divestment. Not saying I agree with divestment. I think active engagement is the best way approach. But if you do have any legislative language, I really strongly suggest that you include some type of reference to fiduciary standard in that. The next area is I think is in regards to the specifics. So if you get into the specifics of what does this entail and how do we measure how much money or exposure VPIC may have to this list of 200 stocks. And as I said earlier, it was very difficult finding this list. It's not publicly available. I actually found it when through our conversations with the CIO of Maine because they actually had this list and from there and luckily VPIC has invested in software. Thanks to Beth and thanks to her foresight into having a good insight or look through into our portfolio, our new matrix system allows us to really have good insight into our plan. Both on the overall level, but actually on the granular level. And so it took a lot of work, but I had staff pull through the matrix data and look at those 200 stocks and basically cross-reference what exposure we would have out of the $6 billion portfolio. I'm sorry. Thank you. Are we asking questions now? Cause I feel like you moved on from the last slide and I wasn't sure. I don't see this slide. So I'm just going by. I'm just trying to go through what the different slides one by one. But yeah, I'd be happy to answer any questions on any of the slides. Great. Because as we go along. Yeah. On the slot. I mean, I feel like it's the second slide that pulls out. From the theme and it's fiduciary responsibility. I'm sorry. I'm sorry. I just wanted to be pick exposure because you started talking about the list of 200. I just moved on to that. Yeah. So in the fiduciary responsibility section. You, you talk about, you talk, I don't know. You didn't just talk about the main at New York and California experience more broadly. There is a statement there that the California experience has resulted in an $8 billion loss. And the California experience has resulted in a $8 billion loss. And I think the California experience is their, the corresponding index. And we had an email from the CIO from CalSTRS that basically quotes that. And so that came directly from his annual report to California. And so. Okay. I just wanted to make two comments about that one. I mean, California is, I think still the eighth largest economy in the world. So $8 billion for them is something very different. And that is potentially for all divestment and they've divested from a lot of other things as well. California has a kind of robust divestment policy that has. Other other pieces of it. So that's not just climate divestment. Yes. And I agree. I think the, the point of listing that was, I think there's some experiences out there that I think we can gain knowledge from, whether it's through looking at how Maine has implemented it, whether looking at how New York has approached it. New York has approached it through a policy driven approach where they have an internal list and they have active staff that goes towards divestment. California has done something similar where they have an active staff. We have three staff people. They have hundreds of people that they can draw on this to create an individual index. If I could have five more staff people, I'd love to be able to say, yeah, we could do this tomorrow. You know, because then we could, we could pick and choose different things that we have. But the problem is. We don't have that. And we have constraints, fiscal constraints and size and scope of what Vermont is the eight billion number. You're right. It comes from a statement from the CIO and his annual report on what his calculation was for lost opportunity costs from the comparable index from their divestment process. It's not specifically fossil fuels. And I want to make that clear. You're right. And what percentage, I mean, I don't know if you know, but the percentage has got to be very different for California. CalSTRS has about 260 billion, as I recall. So do the math would be a billion off of growth on that. Okay. This is just one pension fund in California, their CalSTRS program, but it's, as I recall, it's about 250 billion, but I can, I can, I can double check that number in regards to that references. And I can get you there. There any report where he explains his concerns and, and how they measure it. My point is really, this is the things that I think a proper study would look at before we implement any divestment strategy and or policy understand the implications that potentially could occur if it were to be enacted. And I think that's really all I'm looking to say there. Madam chair, if I may. Yes. Oh, and Anthony too. I'm sorry. I sort of thought that's what we, you guys undertook in 2017. In our agreement with the treasure and VPIC is that you were going to study this all fairly fully and come back to it. Well, we've even funded, you know, I think Senator Clarkson, we've all also, one of the provisions of that 2017 study was to pre fund a carbon neutral index fund that we could then have other states join in and work through BlackRock. And we've actually funded that to the point of $200 million. And so we're in the process of exploring how that impacts our index funds, how we could potentially add more to that. And that's more of an internal investment that VPIC has already made. So one of our indexes is already invested in that. And that's, that's a definite action. Beth can explain more during her presentation or discussion, but that definitely is, we have, we have looked at that. And of the five recommendations back in 2017, we've met all five. So you can look at how we met them enough. That's a great question. And how can we do better? We're working on it. And I think that can be the message that we're, we haven't just put it in a shelf and said, we're not acting on this. We have an active ESG program, not necessarily just in fossil fuels. But if you look at the second document that I attached, which was a staff commentary, I also asked Eric to give me a list of what Katie and Eric and Beth and ESG group has been working on over the past couple of years. And although yes, we may not be successful on all of these, I think being at the table and putting our voice forth on different issues, whether it's fossil fuels, whether it's been a cop pay on, you know, pay compensation issues, whether it's been deforestation issues, whether it's been a labor relations issues with Hilton. I think we've had good experience in all of our ESG policies. So I think and Senator Plena had a question. Yeah, I don't want to beat California to death, but I think given the context of this slide, so that we're looking at, since we're talking about divestment from fossil fuels to say that California's had lost opportunities of $8 billion, somebody reading this would assume that you've met that due to fossil fuels. When in fact, as Keisha Ram Hinsdale suggested, California's divest from tobacco, from gun makers, from the Sudan, from Iran. They've divested from many things. And I think it's important to keep that in mind. And also just recently with teachers in California, teachers in California decided to move forward with net zero emissions policy. So they clearly felt pretty good about divestment so far if the teachers are willing to go even further. Yeah. New York and you mentioned New York in that same paragraph in New York actually divested in New York City and New York State, as you know, and they did it sooner than they thought they had projected they would take them a number of years and ended up doing it quicker than they thought. It's misleading in a way. Well, I apologize if it's misleading. I'm quoting the CIO of California Calsters and in regards to his view on divestment and how it's impacted their portfolio, and I'd be happy to clarify that in regards to where where that came from. And I meant it only as a way to say, well, the picks questions to me were, well, how have other states responded and what has been their experience. Maine's new New York has a policy that seems to be being implemented. It's not legislation in California seems to be working internally. It's not on the cutting edge here of where, you know, where we're at. So there's not many examples and I think those, those three for state examples are very good ones for us to look at and not necessarily copy, but to model any type of future legislation or not or policies based on their experience, whether good or bad, if good things have worked out of their policies, implement those if things that have been bad. And that my point is that we need to look at from a VPIC perspective, how other experiences in the country have affected those pension plans because they're going to affect us the same way, just at a different scale. No, I agree with that for sure. I mean, we're sort of breaking new ground here. Other states have moved forward, but there's a lot to learn as you go forward with this movement as well. Sure. Well, I think New York is looking like a very interesting model to look at. And I think you talk about losses. In the Cal, in California, in the CalSTRS situation, fossil fuel investments may be a huge liability in the future as fossil fuel companies are sued for the cost of climate destruction. We may be on the hook for huge liabilities by owning those stocks. And can I suggest that we might let Tom go through his presentation before we start arguing with him about what we should be doing? I don't view it as arguments. I view it as... But I do, but... Just an interesting way to view where are the loss, you know, what is considered a loss anyway. Sorry. I just... I would like to let Tom continue his presentation. And then if we have questions of clarification, and I believe the initial question from Senator Rom Hinsale was a question of clarification about what does the loss include? So, but before we... I can get you that loss and we can upload it as a... Yeah. As a dendome to the document. That'd be fine. Thank you. So going on to the next page in regards to what does your specific legislation proposed and how does that impact VPEC in regards to our current holdings? And as I said, I looked at the portfolio over the past couple of days to try to ferret out what those 200 names are, how much are they in the portfolio and where we are? What would it actually entail if we had to divest of the current portfolio? And what I came out with, it's about $150 million out of the $6 billion portfolio. And that works out to be about 2.5%. Or say 97.5% list free as it were. So we're well on our way to being close to out of this list getting to your question in regards to what is the exposure of fossil fuel stocks? This is it. It's very difficult to get out of it completely when you have a very low indexing strategy, particularly one as that balances out our abilities with only three staff people, as well as the amount of money that we're trying to invest in a meaningfully timely way and a quick and efficient way. And so indexing has been the strategy that VPEC has employed over the past couple of years. And so having 2.5% exposure is what I've gathered with mainly our index funds, both our U.S. and our AQUI international index funds. And some separately management accounts, particularly some bonds. Now this includes both bonds and stocks. So there's bonds in there that may pay us 3%, 4%, 5% that may be owned by Mitsubishi, for example. I noticed Mitsubishi was on the list. We have some Mitsubishi bonds. There was some on the other list, there was LG. It didn't specify what division of LG. And we do have some exposure to LG. It's the big television company out in Asia. Second, another third aspect I want to point in is here. This does not include calculating any private equity positions that we currently have. We currently have a fund-to-fund approach. And our current software program does not have the ability to really drill down into our fund managers to the detail level like we have in our index and separately managed account portfolios. That's not as significant a problem now, but as we roll out our private equity and private debt positions over the next five years, which is a plan of the EPIC, it could be more difficult, particularly to have that look through and to follow a specific legislation in regards to PEC private equity. We're kind of at the mercy of funds that we're in. Our goal always with private equity has been to get into top quartile private equity positions. We do have an ESG process that vets them during our RFP period. And we do ask this question, particularly our ESG policy and our ESG questions as part of the RFP after the fact or after we get invested in them. That is an issue that we'll have to address. And the last piece I want to say about this 200 list, it's proprietary and it's not easily determined who's going to set it up and who's going to change it. And are we abrogating our fiduciary duties by giving away responsibility to a different firm in regards to the creation of this list. I'd be more inclined to recommend working internally, boosting internal staff if need be to create our own internal list based on internal Vermont carbon policies, which I'd like to call them in that regard. The next page I'd like to point out is regards to my impact on index strategies. And so legislation like this, although it sounds good, it has great sound bites, but it has material impact on indexing. It really would cause VPIC to question our indexing strategy altogether. If we're going to have to subtract an SMP index from an index and in essence turn an index strategy into an active strategy, we might as well create our own active strategy altogether in terms of Vermont. Now the problem with that is it costs a lot more to have a completely active strategy for investing money. My argument would be, do we make our policy based on the 2.5% that we have invested or do we make our investment policy based on the 97.5% that we have invested in? In my argument would be, do as best we can for as cheap as we can in the 97% to maximize our investment return. So I'm very concerned that implications that are sort of, it would be sort of a casualty of this legislation potential would be that we would have to abandon to some extent our indexing strategy. I know there are some indexes out there that we could use. The problem with some of those, particularly those listed on the FFI website is that they're very small. Some of them have assets of 100 million in them. Some have assets of only a billion dollars in them. Those indexes we could not theoretically use because we don't want to be more than 10% of when any one investment manager in any of our investments. So we want to have really broad diversification both from what we buy as well as how much we buy with each of our managers. The bigger funds on that list by FFI, there were some by Parnassus and Calvert, which are big, which we could potentially look at. And I'm not precluding the possibility that we could look at these. All had basis point charges of over 60 basis points. 60 basis points to 90 basis points. And so do the math. We're paying two basis points on $3 billion. If we had to pay 60 basis points on $3 billion, you're going to increase internal costs by $15 million a year. That's not exactly what we do. We try to make some different arrangement by either increasing staff or, you know, changing the, maybe contracting out with different entities, or maybe working with BlackRock to expand our current investment that we just made in more capable way. We're not willing to do that yet. Because VPIC does not have the data yet to justify completely making that switch. So we need, we need years of, you know, at least a year or two years to see how the tracking error has occurred between our current indexing strategy and our carbon free strategy before, or I think we can make a bigger commitment, but that's definitely on the horizon. So I really caution you that any divestment bill that doesn't address VPIC's current indexing strategy could be very detrimental for Vermont taxpayers, as well as our funding capability going forward. And so I really caution you that we've structured our whole portfolio to have the core of it be indexed. And until there's a really viable index alternative that VPIC feels comfortable meets our fiduciary duty, I would caution to say don't put us on a July 1, 2022 timeline to cancel out our investments. The timeline proposed in the current legislation says we can't invest any new money in any of these stocks. I don't know how we do it July 1, 2022, if this went through. And the reason I say that is you plan on giving us 300 million or so in additional contributions based on the pension task force, we wouldn't theoretically be able to invest it in our current investment mix. And we'd have to have some type of transition period that would be well longer than three months to really adequately address this indexing strategy issue. So that's my point on indexing. I don't want to belabor it, but I think with Vermont and how we've structured our portfolio, I really need you to know how this has worked. The next page I want to go into impact on private investments. Now the bill does not really specify either to include or exclude private equity and or co-mingled accounts. And the reason I bring up private equity because private equity in and of itself is one of only two asset classes that we have in the portfolio that are over 7% expected rate of return. And I'll give you some anecdotal information about why private equity is important. Yesterday, my alma mater, so I'll throw it out there. Notre Dame came out with the investment performance for their endowment. They made 53% in last fiscal year. So they went from 14 billion to 20 billion in investable assets. And the primary reason they stated was they have 45% in private equity. We're never going to have that. We're never going to expose Vermont to that level of private equity exposure. But I will tell you our whole strategy for private equity started from my conversation with the chief investment officer of Notre Dame because I called him back in 2016 and I discussed how do we implement a private equity strategy? What do we look for? And his comments to me were make sure you're in top 25th quartile or you're not going to get any benefit. Diversify away and do it over time. And that's what we've been doing really since 2016-2017. We've really accelerated it with ERA because we've had the power of a CIO that has tremendous private equity exposure. But we've really gotten into top tier performance in our private equity portfolio. Right now we have about 1.3 billion in committed capital. About 600 million of that is working for us. The other 700 million or so is out there that we've already committed. We've already signed contracts on. We're just waiting for them to call it away. I have no understanding of how this law would potentially impact contracts we've already signed with a divestment policy that in essence says you can't do anymore after July 1, 2022. My concern is two-fold. One, we wouldn't be able to meet. We wouldn't be able to invest in any more private equity, at least in top quartile. We'd be, we'd be, we do not have the capability at this point or the cloud, quite frankly, to dictate terms to private equity firms to say you can't buy these 200 stocks or you can't buy these stocks that are listed by this firm that isn't an industry standard in the industry. And quite frankly, they come back to us and say, okay, Vermont, thank you. We'll look at someone else because a lot of the funds we go into are closed funds are funds that are very difficult to get into. And they've been worked over years of relationship building in regards to expanding our private equity piece. I really fear that any law or any legislation that does not specifically exclude private equity or private debt would cause significant, significant downward spiral in what the VPIC could justify as an actual rate of return. And so I say that in, because I really understand private equity takes time and effort and a commitment. And if we lose the pipeline to roll that out to what we anticipate we want in our portfolio, which is about 20%, and you know, that's with private equity and private debt until we get there. I think we're at a real significant disadvantage because once we're in, we're in and we can roll the monies over. But as we build this out, it's significantly important to maintain those relationships or we'll end that and we'll have to index the rest of that piece of portfolio, which has, you know, the last study that we used for last year's actual report had private equity rates of return expected at eight and three quarters to nine, clearly above the 7%. Large cap road stocks had an expected rate of return going forward of only six and change, 6%. Do the math, we replace a 9% expected rate of return with a 6% rate of return. I don't know any other way than to come back to you and say, we need to revisit our expected rate of returns for the state of Vermont. And I know what we went through over the past year. So I really caution you, private equity needs to be excluded and commingle funds need to be excluded in any discussion about this, at least at this point. I think we use our proxy voting. So, you know, yes, for examples of how do we, how do we go for private equity and how do we, how do we advocate for our positions there? Well, we have an advisory position on the ESG committee at Harbour Vest, one of the top tier private equity firms out there that has beaten industry averages consistently over a 15 year period. We've done tremendously well with them on our rate of return. Our staff has a position on their ESG committee to affect and engage and actually bring these issues to the private equity landscape. If we're not there, we're not there and we won't be able to advocate for our positions going forward. So that's my, my sort of comments on private equity, but I really caution you against that. Good night. So I think this is one of the areas where I was hoping that you talk about outcomes over actions. You said, you know, if we're not there, we're not there, we're not there. We're not there. But if we're not there, we're not there. And I think that is really influencing the decisions being there. Can you talk about an impact on reversing greenhouse gas emissions from, from those, those actions and activities? Well, one of the activities and I know Beth may hate me for this because she has issues with new being. We've invested in new being as a private equity investor in, in farmland. issue with buying farmland is burning of fossil fuels in the Amazon. And so what we advocated for and what we affected chain was they took out all of the Brazilian assets in our investment. Now they still have other investments elsewhere. But we brought to the table an issue that we were very concerned with was we don't want to invest in different these asset classes and we were able for them to guarantee that in our investment we would not have any burning of the established. The industry standards and we help advocate for that. Now there's issues there I'm not saying it's perfect, but we have had impact in that regard in advocating for change at the, at the top level in regards to private investments with fossil fuel. Admissions in farmland development. Is it perfect. No, but I think it's it's it's one example. I'm, I'm confused because because it sounds like you're saying that they they helped you divest your funds from that activity. It didn't change investment from that firm in the activity, but you divested from burning farmland. No, we weren't. No, no, they formed a fund that didn't have that in that because of concerns like investors like Vermont had, and we invested in that fund that didn't have any of that exposure in it so the change was before we invested, we required as part of the RFP process for them to explain to us their, their policies in regards to the rainforest in the Amazon. And so it's they didn't change our, we didn't have any money invested at that point we just didn't go into it until we had assurance that there are internal policies on ESG. That being one of a big concern that you pick it brought to the table. There's still issues there maybe we may want to, we may find they're not following through and we may pull our money out of it. At the end of our contract term which comes up in November. That's one example I don't want to say that we've, you know, Vermont's a small player in this space. It doesn't affect them to change their policies. If you read their annual report for new being they have changed significantly since we've joined them where they have more disclosure, they have list out their assets in regards to where they have issues of, of climate change and in that regard of Amazon issues that cause significant problems so I don't want to say we we change things come completely but I think it was incremental in regards to what our actions were. Beth can explain more about the proxy voting. I don't know if you want to explain a lot of the Exxon mobile efforts that you've undertaken. That I think has resulted in, you know, very levels of success. However, I'll leave that to Beth to explain her opinion on individual company. I think I'll do that when I do the presentation if that's okay. If I could comment. I think there's a misunderstanding here between invest and divest. And when I look at the, the New York policy for instance it's more heavily toward engagement period. And divestment appears to be a last resort. What they're doing with their index fund is it's an internal index fund that they're able to create because they have the staff and when Tom said hi to five more I'm thinking you need 15 time to do this. But what is the size of Maine 12. Well, there's 12 investment exactly. There's six with this ffi solution so I looked on the website for ffi they only have six people. Maine has 12 and they're struggling with how they're going to implement the current legislation, but you can build it if you have the staff you can build an internal index fund that that has a low carbon impact. So it's invest, not divest. And what what Tom has done with the $200 million with the, the, the passive index is it's a separately managed fund we're in it. And it's 200 million we can, we're certainly going to look to whether we can increase that down the road. And we're hoping that other folks want in the future will want to join that fund that was our goal number two and that five point plan. So if we're able to do that. That's an example of invest, as opposed to divest and a divestment that's blanket that doesn't allow you to do this type of a invest in an engagement first I think is, is a mistake. But I wanted to get across the difference between what what I see New York versus the main legislation, the main legislation is a blanket. The New York approach is to take a look and say, what are our alternatives to engage these folks. And when is it to a point that you can't do anymore. And then, and also why we're doing this, that's creating investment strategy that gets us to a low carbon economy, which is what we're trying to do as well. So I'm going to jump in here and say that in about 12 minutes, I have to leave to go to a chairs minute meeting. So we can keep on an Anthony, would you just take over. Well sure I'd be more than willing to do that but I really think it's important for the whole committee to be here for this conversation. I agree but I know that we have. We can finish even finish the presentations in the next 15 minutes so I would ask I guess Beth and Tom, if you would prefer this to come back on another day. I can get through my presentation pretty quickly because the rest of it is just saying solutions that we could potentially could work with collaboratively and you know I don't want to belabor impact rate of return assumptions so you know that's kind of everything I said in regards to what we're now responsible for obviously we have to look at rate of return and next spring we have to do an experience study in regards to what the current breakdown is, and I'd hate to be able to I'd hate to have to take out the private equity piece in our in our calculation. The last piece timeline, I do think it's aggressive 7122 is way too early in regards to us to get out of our indexing strategy and to have a clear coherent message for our private equity piece, we have contracts already outstanding. I don't know how we'd affect those or how we'd even look at interpreting those contracts and 722 main for example didn't put it out till 7126. So you're even significantly more aggressive than main who passed their law a couple months ago and so I, I didn't argue that this transition period needs to be seriously revisited. If this is this if this goes into effect. I'd also say act 75 has taken a lot of staff time to implement. If we are going to undertake an effort like this, I will need to bring this up to appropriations in regards to amending our budget that we submitted from the governor's office. We would need more staff. We would need money for studies, we would need money that I think has not been allocated for you're already asking us in act 75 to implement a compensation study, as well as an asset liability study which we both budgeted for and we look forward to doing over the next year. If we're going to also be asked to implement a divestment strategy. I did this in 2017 a follow up investment would need would probably be at least $60,000, possibly more apologize for this, my daughter's calling me. I, I think budgeting would have to be addressed in any regard in regards to this timeline for fiscal 23 into fiscal 24 and include at some type of transition budget. And with that, I would end with alternatives, and I think I asked Eric to say well what have you been thinking about in regards to how do we mend our ESG policy for to add some type of carbon policy similar to New York, I think a more apt to go the New York route in regards to looking at policy. So at this time, let's look at this thoroughly look at the experience of other states. Don't implode what we've accomplished over the past five years and see the progress we've already made. And I would argue we have made tremendous progress I've given you 11 pages of things that are three person staff has done with best assistance. We have the staff, and we have the personnel to do more in the future. I'd love to do it, you know, I do believe addressing carbon is a core issue that investors need to look at how we do that is through as best as invest, not divest. As using our seat at the table to advocate for change, not by sitting in the stands, you know, at the argument would be you're either playing on the field or you're sitting in the stands and I view divestment as sitting in the stands and I'd hate to do that for Vermont. At the same time as give up the really good work we've done with our private equity rollout as well as our indexing. So with you with that, thank you for your time, and I'll turn it any questions that you may have. Senator Polina. I would just say I appreciate that. You know, I think, like any new piece of legislation it's a starting point. And when we talk about implementation and timelines and strategies there's more than willing to have that conversation. And I think looking at what other states have done like you point to New York which I from what I can tell also did a good job of working through what they wanted to do. I think that, you know, there's other places I've done this and I don't know if any of them have come back and said that they're financially ruined because they divested now it's clearly hasn't been that long and period of time yet. I'm saying we need to change our expectations if we're going to do this in the current way or change the current way. If you want to give me 10 more people and you want to give you want to you want to really make an internal we could have our own internal indexes. I don't know if that's feasible in the state of Vermont. Sure. Are there places that I mean where we are pretty small compared to even even places like Notre Dame and Harvard and stuff. I think that our investments are pretty small but are there other places that are as small as we are that are able to create their own internal index with three people. I mean, you can probably create your own internal index. I mean, I remember you have to be able to define what you're trying to, you know, it's hard to beat the indexes and it's hard to craft your own index of time. Yeah, there's a lot of reasons why people have indexed over the years and use the established indexes. You know, you're seeing S&P carve out sectors so you can buy different sectors and short different sectors and those are new phenomenon over the past 10, 15 years. I think, you know, Vermont's not unique but we have unique issues. You know, we have huge cash flow needs and we have huge unfunded liabilities and so managing for that has been more of a priority than addressing you know, internally indexing. I'd love to be able to internally index. If we have three people and we could manage it ourselves then we could really earmark it for what portfolio we'd like but, you know, you're competing against global players for talent and one of the recommendations from RVK our independent governance consultant was that we really have at risk here in Vermont, He-Man risk, you know, we have three people and the pool of talent is relatively small for the amount of money that we're able to pay in regards to current salaries and so I'm really looking forward to this governance study just to see how could we restructure VPIC, you know, now that we're new and independent we can explore these different questions we can explore what's the right size internal staff versus external consultants. I'd hate to give 60 basis points to Wall Street, if we have to go a different active management for large cap stocks I think that would be a terrible move and $15 million mistake. But we would all agree with that. Of course we'd agree with it and just to answer Jeanette's question, Jeanette there've been over 1300 institutions. I realize that I, I know that I'm just saying we are relatively small and I just wondered if there are institutions that are as small as we are that have created their own internal index with the limited staff or do they have more staff people in there. That was my question is not. We have a bare bones that you're not going to find much smaller than three, you know, anyone trying to run $36 billion, I would argue. Yeah. I mean that was my question I just wanted to know. I think we'll find out. That's a good question. Please. Does that mean that shareholder activism and things like that are getting short shrift or does that somehow take less staff capacity. No, I wouldn't say that they're getting short shift I think Katie and Andy and Erica have done a tremendous job of identifying the areas of our portfolio that we think are of priority. Whether it's been through, you know, actions on climate if our with our commitment to the Exxon mobile proxy voting, or whether it's through issues like the compensation or issues in regards to, I know there was some union issues that we addressed with with Marriott corporate a year and a half ago. We prioritize activism where we can we aren't an activist group so it's not our nature to just be activists. However, we do believe in following through on our ESG policies and if we were to create a new carbon policy we'd incorporate that more in our activist strategy and we'd identify those companies we feel we could advocate for change better. There's going to be some we may decide like New York does that. It's beyond hope and we should get out of and, and from that perspective then we'd have a fiduciary process that went through the steps of identifying what we can do as activists and what we can't do. And when is the time hold a trigger and say let's move on and just not not even try anymore. Effective change for climate is going to take a lot of effort not necessarily just with investment divest in divestment I mean it's going to take advocacy I think legislature has more power in your, your, we tool kit to affect more change, you know, it may be more unpalatable but you know immediate impacts are not going to be affected by us selling our stock right now it's going to take years and years for that to materialize. And I don't think you have years and years in regards to climate activism, but that's my own personal opinion, but I think we will do our part, we just need to have a way to do it in the state of Vermont and structuring VP pick in a way will be helpful and we're willing to collaborate I guess is what I'm trying to and answer that pipe. Could we, could I ask Becky maybe and maybe it's already there and I just didn't see it yet but get us a kind of an outline or Tom or Beth of New York, how they, how they did that and the kind of the steps that they took around. What do we do and then when is the time to get out. I do have I think Eric had requested that from Tom Lee who's the CIO of New York and I think I have it I think he sent me a bunch of the New York policies and timelines and procedures that they've implemented I can forward that and he's indicated that he'd be willing to work with us in regards to determining how it could be effective in Vermont. And I'll send everybody the New York Times article about about about the announcement and which was in August of 21. Yeah, I think Tom Lee forwarded that day. Yeah, so I have Tom Lee's internal policy discussion and documents New York worked on in regards to their policy so those are the type of things that I think are effective and could be helpful for us at VP to determine what it what works and what doesn't. And I think that's the final thought would be that when you talk about the activism and working with corporations to change their behavior that's fine and good. But going back to what Senator Rob Hinsdale said earlier when we started the meeting, we'd like to know like places where that actually made a difference in terms of keeping petroleum in the ground, you know, not really had an impact on the way they do business. I mean, it's nice to have their boards be more diversified and whatnot I'm not putting that down at all that's really important. Well the example that the example that that Beth always brings up is total and their investment in solar I think there has been some fossil fuel related energy companies that have made significant investments in alternative energy, whether it's solar or wind or other areas that I think would be effective. You know, who has the capital to affect change as well and so if you can, if you can, if you can force these companies in some way to affect their own change and work from within because they have the capital to do it. I don't know if ExxonMobil is the one that will do that I don't know where the shell will be but but I think they're the ones that do have the capital and the infrastructure to actually start that process. You're seeing radical change in some of the car companies whether they're generating electric cars, and that seems to be coming about a lot quicker. We all had hopes for BP, but I haven't. I'm not sure I've seen it materialize as much with BP. Yeah, I think one of the and then I'm going to jump off because I'm late already but one of the things that we also are looking at this is only looking at divesting from fossil fuels right. I mean this doesn't have anything to do with your earlier example about saving the Amazon rainforests, which is a huge, huge issue. So if we're only talking about fossil fuels that's one avenue but there are other other ways of getting to where we want to get to which is saving our planet. Well, from an investment perspective we do consistently get requests in regards to how and we try to incorporate that NRESJ policy, strengthening that and adding different features to it is always an objective if you pick at this point. Yep. I'm going to jump off and I'm going to, we'll schedule this again. So Dale and I are going to work on our next week schedule tomorrow at noon so we'll see where we get, but we will schedule this again. Beth I apologize for not. All right, I've got more than 15 minutes. And now it's three minutes past the 15 so I'm going to go. We were 15 minutes late. I know Clarkson has to leave also right. Yeah. So thank you this was a great start and very interesting for I look forward to pursuing this with you both. Thanks. Thank you. Thank you. I think that we, we will be able to to get into your point representative on a senator, excuse me senator from Hinsdale. I still remember you from over over on the other side so very cooperatively with you there as well. There are substantive examples of where we've made change. And I think that that's important. Getting to the Exxon issue. I would like to recommend that you ask us to bring in a group called engine one this is where Exxon double down on oil. Others are making other choices and for the first time in its history, it had three members of its board of directors ousted by and and folks that are energy folks but are more toward diversification. And that came from from engine one one, I think it's a private equity firm. They spoke to about a dozen treasures, including me about some of the issues and why they picked Exxon and how that all worked. This is a success story I mean never in their history. And in fact I think that I remember members of 350 calling it a groundbreaking event and the like. So I think we should bring them in to talk a little bit about engagement. I would certainly be happy to reach out to them. We did as treasures and I think that that would be very important. And I think that this global, you know you talked to Senator around Polina about this being the first shot. I think we do need to do some type of study. I took a look at Maine, they're doing a study now in November the board said that we would do higher with a group of experts. A group of experts and do an RFP to assess the impact on investments. Now, I appreciate that they're having to do that now and I think the board, the pension board is being very proactive in doing that. We did that in 17 and we did it in an extraordinarily collaborative manner. I would recommend, don't do the legislation and then find out you have a problem. Do the study up front and do it in a way that we did last time which was extraordinarily collaborative and in the end we had endorsement of the five point plan. And again Senator I would be happy to talk about the actions and the results from that from that plan. And let's, let's do that. Let's look at ways that you can invest and not the blanket divestment is not what I see that's been successful in other pension investments. When you talk about endowments and you talk about other other types of education agencies are different, different rules around a different strategies. And today, I'm a fan of Notre Dame to by the way, but the, the, I don't know if that helped me, but the, but hopefully there are no Michigan fans listening, but the that's that strategy works for an endowment. It doesn't work for pension funds. We need to have that conversation. I'd love to go back and talk about some of those issues and the success stories that are there. But I do think that we put the cart before the horse we haven't done our homework at the front end about what are those strategies. Well, we have, we have not, we have not, we have not committed to divestment yet. So we haven't put the horse before the cart we haven't loaded up the cart yet we have put the horse on the front of the wagon. We're basically talking about, I don't, I don't want to see a study. I want, I would like to see a strategy perhaps where we come back with the plan on how we're going to divest do the right thing, whether it's co-mingled funds or the, the singular funds that we invest in. I mean, there's things that we can do that we don't need to study like what what what we need to do we need to decide on how we're going to go about doing it. So I think that's where the focus should be. I would suggest two things, Senator first, you don't fill up the cart until you know what you want to put in the cart. Okay, that's why I said we have filled up the cart yet. Yeah, but you can't do that without doing some investigation. We have a number of other states we have a bunch of other states and entities that have we could learn from instead of we don't have to reinvent the wheel. Well, I think that you put the cart and analogy further. Well, I think that two things I think this this bill misses what other states have done that are further along in terms of New York, for instance, versus the bill that's very similar to to to a strategy that's blanket. You know, such and I think that we need to take a look at it main has started to do that. And my suggestion is that you do it up front and take a look at it. And if I could serve. There are two steps to to your fiduciary responsibility. One is called procedural. Okay, and that's where you do the study you take a look at what you do. And the second is called something substantive if I could say it correctly, and something is based on the analysis that you've done based on the steps that you have taken them to look at that path. What are the decisions you're going to make based on that and I think that we haven't done our job there. And I think we can collaboratively find a way to do that. And I would recommend stepping back, taking a look at that bring in engine one if we can bring in the folks from New York and have the conversation about how we might want to structure this to get to our mutual goal. And I think that's possible. Yeah, well then we're on the same page. Let's bring in that that's bring in the experts and have the conversation. Senator Robins though. Yeah, I mean, first of all, I do think we're on the same page that we want to look at other states that probably had similar conversations and reached the conclusion related to the path that they're on. We're not married to this language versus what Maine and New York are doing. Can you educate me I'm quite curious just what, what would be substantially different about what Vermont has to consider from Maine and New York as we learn from them. Is it that we're invested in wildly different funds are size, our decision or policy related decisions are there huge differences in what we need to consider vis-à-vis Maine and New York. Well, I think that when you look at Maine, and what the legislation went through. And now what you're looking at is the board reacting to it, rather than have the, the option of helping with what it might look like at the front end. And I think that they convening a group of experts, they're taking a look at the impact they're hiring a consultant. When we hired a consultant in in 2017. We stepped back, we let it be an independent process and we let the group of folks be purged Sierra Club clean yield and 350 pick the consultant, and then we work with them independent and they work with them and we step back after providing the information. I would like to see us look at some type of process that says, let's get our factory. First, what means now doing is having to do the same type of study, and whether that changes legislation whether that changes strategy. You have to look upfront about what you would want in a bill to get to the point that you're trying to get to and do the work upfront, rather than have to come back and look at a bill later and say well that didn't work we're going to have to do this. The, the issue with New York and others is that they are larger, they have internal staff. I, I once joked with somebody over in CalPERS and said you've got four city blocks of staff so now we're bigger than that. And I think they are, but the, the issue is that they're different in the structure and their ability to do internal things so what's the alternative. Tom's done a great job. And that's item number two on our list of the five point plan, which is to create a passive index fund. We now have one that's specific to Vermont because we tried to do one with a city out in a very large city larger plan than we did out in California with any PC previous consultant and it didn't work there were just too many problems with it. We now have one and we hope we can put more money into a low carbon passive investment strategy, and we hope that we can offer that at some point that others can join it. And that means that we're also delivering a message to other institutional investment in institutional investors that here there's a low carbon alternative that we've added it works. Why don't you join us and that creates a lot of a lot of positive action toward toward a low carbon economy. So I think that we need to have those conversations and then say what does that mean in terms of the legislation you're going forward. I want a low carbon economy. I want to be able to have my, my, my grandchild and have the future that has an environment that works. That's why I spent so much time on clean water to be very candid and our natural resources. I also want them to have financial stability and if they're in a retirement plan I think we can do both. And I think we can do it well, but I think we need to put in the effort and do that up front and I'm willing to spend the time to do that with you as chair of the VP commission ESG committee. Later we haven't met on this subject so I can't speak in for myself and my experience from the last effort, but I think that you would find the discussions about how you get to a policy that says this is how we engage first. And this is what we look at for the alternatives, when you can't get there. And how do we do that. And where do we do that. And what are the economic and fiduciary considerations in that as well. How do we do all that. And I think that you would have better legislation. If you were able to take those steps up front. And I think Tom's willing to work with you. I know I'm willing to work with you. And I do think that that most of the, the VP members are thoroughly engaged in this as well we have an ESG committee we've been doing all this work. And, you know, and it has had results. And, okay, well, that's, that's why we hear you. That's why we're here having this conversation. But I don't want, I really don't want us to go on without the other senators here because otherwise we'll be repeating ourselves the next time we show up. Absolutely. I always suggest that we adjourn for the day and come back and have a further discussion. So we get to the bottom of this and I think we've all expressed the fact that there's some flexibility in our thinking that we have a goal as to where we want to go. And we want to figure out the best way to get there and with a lot we can learn from other places but we need to move forward because for committed to climate change, or committed to fighting climate change we have to start taking these actions and consider the long term investment as well. So I appreciate y'all being here, you too and Tom, appreciate your going through your, your slides even though you didn't show us the slides. I appreciate your flexibility. I'm usually better at that I apologize, but we'll be happy to, you know, and maybe create, create some type of measure of success center around Hinsdale is what, what would you like to see and how should we report it you know we're open in the future. I know I got a text from Eric in regards to some flaring example Beth that you collaborate on so there's other examples that are our staff is texting us they've been on the maybe have them testify in regards to well, what have they experienced and what are some of the things that we can report to you today I didn't, I didn't pull that together but I, there are plenty of examples and, and with more, more emphasis on it we could, we could focus on what our measures of success. So five years from now we can really point to. A now we're at point B what's what's point C, without jeopardizing our long term investment viability at the pension trust. That particular example was on my list, we'll let it go we'll get back to it but I think that we're all in the same page we want to do the right thing, we just want to do the right thing, right together. So, thank you. Okay. Have a good night. Yeah, take care.