Throughout 2017 and 2018, the Chemours Fayetteville Works plant discharged and emitted GenX, a toxic compound, into the air, the Cape Fear River, and the groundwater, polluting the drinking water supply for hundreds of thousands of people.
The NC Department of Environmental Quality (DEQ) issued “Notices of Violation” to Chemours. It threatened to pull the company’s air permit. It finally filed an order with a Bladen County court to force the company to reduce and eliminate its contamination. And the Cape Fear Public Utility Authority scrambled, spending $8 million of ratepayers’ money to reduce levels of GenX in Wilmington’s drinking water.
As residents pleaded with DEQ, the EPA, and their lawmakers to do something to protect their health, the office of North Carolina Treasurer Dale Folwell had been investing state pension funds in Chemours. His office continues to do so, even though the science has shown that PFAS from Chemours — and before that DuPont — has been contaminating drinking water for more than 30 years.
Among its many duties, Folwell’s office is in charge of investing pension and retirement funds through the stock market. In September, Cape Fear Public Utility Authority Executive Director Jim Flechtner learned of the treasurer’s investments in Chemours through an investor newsletter. On Sept. 29, he sent a letter to Folwell questioning the investment:
CPFUA cannot speak to the financial justifications for this investment. We question whether the events of the last two years play some role in how the State of North Carolina chooses to invest public money, and if, somehow, these events were overlooked when your office made this decision.”
In response, Anna Yount, executive assistant to Folwell, wrote that Chemours stock is in an index fund — Russell Midcap. This fund includes 800 publicly traded US companies whose individual value is between $2 billion and $10 billion.
For index funds, a portfolio manager does not pick individual stocks and decide when to buy and sell. Instead, the manager assembles a group of stocks whose value is supposed to peg to the risk and the return of a particular index, such as the Dow Jones Industrial Average and Standard and Poor’s 500. Investors often use index funds because they tend to provide a greater return than a single stock.
Yount wrote that state treasurer “has no control” over the stocks that are in these index funds. “That is determined by the index provider.”
Frank G. Lester, deputy treasurer for communications and government affairs, told Policy Watch via email that “while other indices may indeed exist that exclude Chemours,” the North Carolina Retirement System decided long ago to use the Russell Index.
Treasury staff did so in part because Russell, popular among institutional investors, performs well and charges comparatively low fees.
Yet the treasurer’s office has divested from certain companies before, although usually in response to international conflicts and at the legislature’s behest.
Rep. Grier Martin, a Wake County Democrat, sits on the House Pensions and Retirement Committee. He said that occasionally the state’s investment decisions have been based on other factors besides economics.
In 2017, the General Assembly passed a law directing the state treasurer “to adopt a policy prohibiting the North Carolina Retirement Systems from investing in any company engaged in a boycott of Israel.”
Martin said the committee “hasn’t discussed at all” the Chemours investment. Committee leadership would be the natural bill sponsors: In the House, that’s Rep. Allen McNeill, a Republican from Randolph County, which has not been directly affected by Chemours.
But in the Senate, Republican Bill Rabon co-chairs the Pensions and Retirement and Aging Committee. He lives in Brunswick County, where the public drinking water supply has been contaminated by GenX and PFAS from Chemours. He also represents New Hanover County, where these compounds have contaminated the drinking water for more than 30 years.
Rabon did not respond to a request for comment from Policy Watch.
While Chemours polluted, North Carolina investedT he treasurer listed Chemours as an investment in its filings beginning in early 2018. Large investment managers, such as state treasurers, are legally required to file quarterly “13F forms” with the Securities and Exchange Commission disclosing all of their investments.
According to North Carolina’s 13F filings, in the first quarter of 2018, the pension fund had more than 17,000 shares of Chemours stock, valued at $837,000. By June of that year, the state had increased its investment to over 40,000 shares and $1.78 million in value.
The uptick in shares continued, and by June 2019 the pension fund had invested in 80,394 shares of Chemours stock, worth about $1.9 million.
(The treasurer’s office also invested funds in DuPont stock this year, with holdings worth $35.8 million, as well as an array of common energy stocks associated with the Mountain Valley and Atlantic Coast pipelines.)
In February 2019, as the state’s financial investments in Chemours continued to climb, DEQ, Cape Fear River Watch and the company entered into a consent agreement. In addition to environmental requirements, the agreement penalized Chemours $12 million, the largest fine ever levied on a single company.
Even if the treasurer’s office ignored Chemours’ environmental and public health disaster that was unspooling in southeast North Carolina, the stock itself seems financially risky. In May, according to court documents, a billionaire hedge fund manager named Larry Robbins recommended that investors sell shares of Chemours stock because the company faced “$4 billion to $6 billion in liabilities” — from two-thirds to as much as all of the company’s market value.
As Policy Watch reported this summer, Chemours is suing its former parent company, DuPont, alleging that it spun off the company to avoid liability. Chemours also alleged that DuPont vastly low-balled the cost of environmental cleanups.
After a Delaware court unsealed a key document in late June showing the degree of the alleged cover-up, Chemours’ stock price declined by 10 percent, wiping out more than $382 million in shareholder value. By August, Chemours shares plunged again, erasing another $560 million in shareholder value, according to court documents.
Just last week, the Electrical Workers Pension Fund, Local 103, in Boston filed a class action complaint in US District Court against Chemours, alleging the company violated federal securities laws. The class action, filed in Delaware where the company is incorporated, was brought on behalf of the union’s purchasers of Chemours stock from Feb. 16, 2017, to Aug. 1, 2019. “This case is about Chemours’ misrepresentations to investors that concealed the true extent of the massive environmental liabilities the company incurred …” from its discharges of PFAS, the filing reads.
During routine earnings calls, the filing reads, Chemours CEO Mark Vergnano soft-pedaled the financial risks of the contamination. In 2017, his assurances resulted in an increase of Chemours stock price of 18 percent. In November 2017, after high levels of GenX from the Chemours Fayetteville Works plant had been detected in the Cape Fear, Vergnano told analysts on an earnings call: “We do not believe that there are health effects of this in the drinking water.”
He repeated a similar statement in February 2018: “I really want to be clear that we continue to believe that none of the discharges, either before we became an independent company in mid-2015, or after, have adversely impacted anyone’s health.”
PFAS, including GenX, have been linked to kidney and testicular cancer, thyroid disorders, elevated cholesterol and high blood pressure during pregnancy.
Last week, NC State University scientist and professor Detlef Knappe released a startling analysis of preserved water samples from his lab. Tests detected astronomical levels of PFAS — ranging from 130,000 parts per trillion — in the Cape Fear River that Chemours had presumably discharged into Wilmington’s drinking water supply for decades.
As of September, North Carolina’s pension fund reduced its investments in Chemours. Yount, the executive assistant to Folwell, told the Cape Fear Public Utility Authority that the decrease was “due to a reduction in assets” in the index fund. But the state still holds 39,094 shares. Today that’s worth just $586,000.
Next month, the Cape Fear Public Utility Authority is scheduled to begin construction to upgrade the Sweeney Water Treatment Plant to reduce levels of PFAS in community’s drinking water.
The cost: More than $40 million.