New York State pension fund to ‘decarbonise’ by 2040

New York State Comptroller Tom DiNapoli announced today that the $226bn (€186.7bn) New York State Common Retirement Fund is “moving to divest from the riskiest oil and gas companies by 2025 and decarbonise by 2040”.

“Achieving net-zero carbon emissions by 2040 will put the Fund in a strong position for the future mapped out in the Paris Agreement," DiNapoli said.

Speaking to RI, Richard Brooks, senior strategist with US-based climate campaign group 350.org, part of the coalition working towards this announcement, said: “This has come about clearly because of the incredible perseverance and smart campaigning by the groups in the multi-generational DivestNY coalition. 

“We had many moments where teenagers have joined with pensioners to lobby state legislators to sponsor the Fossil Fuel Divestment Act – and the momentum around that legislation in the past year has really been part of the reason we are celebrating this announcement by the NYS Comptroller.”

"This announcement is a big deal, and it is a win-win for the Fund’s bottom line, and the future survival of our society” – Senator Liz Krueger

In fact, New York State started this process last January with a review of thermal coal companies, studying two dozen and divesting from 22 of them. It is currently in the midst of a review of tar sands oil companies that should be completed by the first quarter of 2021. The companies being reviewed include: Imperial Oil, Canadian Natural Resources, Husky Energy, Suncor Energy, MEG Energy, Athabasca Oil Corporation, Cenovus Energy, Japan Petroleum Exploration and Tatneft.

“They are creating a set of criteria that are set pretty high to assess their portfolio for climate risk,” Brooks said.

“If [companies] don’t meet those standards, they will divest from them. They will be systematically moving through the rest of the [fossil fuel] GICS [Global Industry Classification Standard] sub-sectors, shale oil and gas next, then the integrated big oil majors, midstream oil and gas producers, the service sector, the Halliburtons of this world, and then on to transportation and pipelines. They will be completing all of these reviews within four years, including the actions related to the reviews, such as divesting if they don’t meet the standards.”

Asked how such divestment will be achieved – often a problem where funds are heavily invested in indices that contain fossil fuel companies – Brooks said: “They are going to work that out with their fund managers, as they did with thermal coal, and they will proceed in the same way. They may have to get out of certain types of funds or get bespoke products from their fund managers.” 

Brooks said that some of the fund’s investments are not made directly in a particular index but takes that index and mimics it, making direct investments in the holdings to the same level as the index while excluding those holdings that it has deemed too risky.

Brooks described DiNapoli as fairly conservative, saying he would not commit to things he is unable to do, and “there is no hesitancy on his part in terms of being able to divest if the reviews conclude that that is the course of action”. He added that if reviews show that companies are able to transition their business out of fossil fuels and meet Paris alignment goals, mitigating against climate risk, then they will be placed on a watchlist.

But, in addition to the initial review, there will be regular reassessment of those companies that have not been divested for ongoing compliance with the standards. Companies that do not stay on track may be subject to future divestment.

In addition to a press release, the fund published a background document which outlines the review process; the first stages towards achieving decarbonisation. 

Brooks described it thus: “Rigorous reporting will be undertaken as part of this process, they will put out a statement outlining: the companies they will be reviewing at the start of each round; the process they will be using; and the minimum standards they will be assessing [companies] against. Each time they complete a review, they will put out a statement with: their conclusions; who they are divesting from; which companies they are adding to a watchlist and why; as well as which sector they will move on to.”

Asked what was the nature of 350.org’s involvement, Brooks replied: “There have been some very active conversations between us, Senator Krueger [Senator Liz Krueger, currently the chair of the senate finance committee in the New York State legislature], who is the lead sponsor of the Fossil Fuel Divestment Act [along with Assembly Member Felix Ortiz], and the Comptroller’s office around this.” 

Brooks added that, as a result of the statement, Krueger has said that she will not reintroduce the Act when the new legislature resumes in January. “The process goes further than the legislation calls for,” noted Brooks.

Kreuger said in the statement: "This announcement is a big deal, and it is a win-win for the Fund’s bottom line, and the future survival of our society.” 

Speaking of the timing of the announcement, Brooks said: “This is a really big deal, it’s no small, fringe fund and the Comptroller is very well known; and the timing is significant with the fifth anniversary of Paris [COP 21 climate agreement] next weekend.” Brooks added that it sets the “bar of ambition high for other pension funds and institutions around the world as we count down to the next big international climate meeting, COP26 next year in Scotland.”

350.org’s own press release notes that the Common Retirement Fund has held over $12 billion in fossil fuels, including more than $1 billion invested in ExxonMobil alone. The release goes on to say that today’s announcement puts pressure on the $120 billion New York State Teachers’ pension fund to divest.