A closer look at sustainable finance in the US: Maine

Paul Hodgson looks at ESG developments in Maine

This is the fourth in a series of RI Snapshots dedicated to ESG in key US states. Each will explore the activities of local pension funds, policymakers and the wider investment community. This article focuses on Maine, whose governor recently addressed the UN to announce that her state would be carbon neutral by 2045

ESG developments in Maine are coming fast and furious after a Democratic tsunami took control, at the recent mid-term elections, of the state senate and congress, and the governorship, the attorney general and the state treasurer, taking over from Republican Paul LePage, a mini-Trump figure with similar views on climate change.


Maine shot to the top of climate responsive states when Governor Janet Mills announced at the September United Nations climate meeting that the state would achieve carbon neutrality by 2045. 

In April, she signed an Executive Order to create the bipartisan Maine Climate Council, which has been ordered to provide recommendations no later than December 1, 2020 on ways to achieve a carbon neutral economy. 

She signed legislation in June to increase Maine’s Renewable Portfolio Standard to 80% by 2030 – one of the most aggressive standards in the nation. This legislation also sets a goal of 100% renewable energy by 2050. 

Earlier in the year, in March, the state launched an initiative to install 100,000 new heat pumps by 2025, and used funds from the successful emissions lawsuits against Volkswagen to expand the availability of electric vehicles and electric vehicle charging stations across Maine. 

In addition, she established mandates to reduce greenhouse gas emissions 45% below 1990 levels by 2030 and 100% by 2050.

Attorney General

Alongside the Attorneys General of many other poorer states in the union, the Maine AG has been active in a number of suits against drug companies marketing and selling opioid pain killers, as well as opposing multi-million dollar bonuses for executives of these companies. 

AG Aaron Frey has also been active in contesting Trump attempts to roll back climate legislation and regulations. He joined the lawsuit to prevent clean car standards from being dismissed, and condemned the administration’s attempt to get agencies to ignore climate change in public statements, joined another suit against Trump’s “dirty power” rule, and another against EPA inaction on toxic asbestos.

In September, he also joined a coalition suing the SEC for putting brokers ahead of investors and wrote a supreme court brief to protect LGBTQ+ workers’ rights, the subject of countless shareholder resolutions. 

Legislature’s legislative agenda

The legislature, in addition to passing the Governor’s legislative agenda, has also been working on ESG initiatives more generally, passing a series of bills to protect Maine’s coastline in the event of climate change-related extreme weather and sea level rise as well as requiring the state’s Environmental Protection Agency to update the state’s climate action plan. 

Another piece of legislation bans offshore drilling for oil or natural gas after Trump had opened up the possibility of drilling anywhere off the US coast.

State pension fund investment policies

RI spoke to MainePERS executive director Sandra Matheson and deputy CIO James Bennett about the fund’s investment and ESG policy. Matheson recalled legislation that called on the fund to divest from fossil fuel companies back in 2013, though the fund demurred. 

“Fundamentally, we believe that engagement is how we implement our ESG policies in our public equities and index investments,” said Matheson. “You lose your ESG voice if you divest. In 2013, a fossil fuel divestment bill had great support, with MainePERS the only voice against it for various reasons, including Constitutional mandates.”

Matheson explained that there was a positive outcome from the proposed bill. The fund had already been engaging on ESG, particularly concerning its private equities, when the committee heard this, it expressed real interest in the topic.

Matheson told the committee that the only thing preventing them from expanding their work in this area was funding. The committee asked if the fund would be interested in engaging with stakeholders.

Sandra Matheson, MainePERS“We put together a task force with ESG experts from all over the country,” continued Matheson, “and stakeholders were welcome and did listen into or attend our meetings. We also published summaries of each meeting that we had, which became our task force report.”

This formalised the fund’s ESG policy and it was then integrated internally into investment processes.

“When we look at private equity partnerships, our due diligence includes a set of robust ESG factors because we believe ESG responsible firms tend to be responsible in their operations in general,” she said.

“There’s no bright line on any specific ESG factor,” said Bennett, “but, holistically, if the firm scores poorly on ESG issues they will not make it into our portfolio. We engage on a limited basis with public companies, but we carefully vote our proxies. We vote in favor of proposals (ESG or otherwise) that we expect to financially benefit shareholders. We also vote in favour of proposals for reasonable environmental disclosures, disclosure of political contributions, and proposals to improve worker health and safety.” 

Matheson explained that the fund was not resource rich, nor does its voice have as much weight as larger funds. But it has joined groups like the CDP (the former Carbon Disclosure Project), Ceres and the 30% Coalition, and it works with larger public pension funds like CalSTRS, which can take the lead on these issues.

Whenever the fund initiates a relationship with a new private equity manager it looks at historical performance, portfolio companies, labour relations, and, depending on the industry of portfolio companies, it examines environmental issues. 

Labour issues have been a focus for a long time, in part because they are important to a majority of the fund’s beneficiaries and in part because they are good management. 

The governance of the investment partnership is also important. The fund also monitors management to make sure that they adhere to their representations, using quarterly calls, annual visits, and monitoring news about portfolio companies. 

“If something went amiss with a portfolio company, we will immediately call the general partner and ask them for an explanation and we will get a response in a couple of days,” said Bennett. “We would be all over it,” added Matheson, “and, if we didn’t see a good explanation, we would seriously question re-investing with that manager again. We make sure the managers’ interests are aligned with ours, however, so it’s infrequent that we have any conflict.”

“We know our engagement with investment partnerships on ESG has made a difference. And now most firms will include ESG in their presentation to us,” she continued.

As a proportion, MainePERS’ investments in good ESG companies have grown holistically along with its ESG policy. 

“We incorporate ESG considerations into all investments we consider rather than specifically looking for investments that can be classified as an ESG investment,” said Matheson. 

“Our policy has been used as a model policy for other funds looking to develop their own.” 

Both also noted that the fund had a very strong constitutional mandate, which requires it to invest only in the best financial interest of all beneficiaries.