New York State Comptroller Thomas DiNapoli will face the polls next month as he bids to remain at the helm of the State’s $209bn public pension pot. Standing in his way is a Green Party politician pledging to divest the giant US fund from fossil fuels.
But being challenged by a politician over his perceived stance on divestment is nothing new for DiNapoli, who was publically called upon to divest last year by New York State Governor, Andrew Cuomo.
“I haven’t ever said we wouldn’t ever pull out of these [fossil fuel] stocks, but I am not just going to jump because everyone tells me to, or because they are picketing our offices”
Speaking to RI in New York during Climate Week, DiNapoli said: “I haven’t ever said we wouldn’t ever pull out of these [fossil fuel] stocks, but I am not just going to jump because everyone tells me to, or because they are picketing our offices”. Adding that he wasn’t going to manage the pension fund in “response to political campaigns or slogans”.
Pressure on DiNapoli has grown over the last year, since New York City Comptroller Scott Stringer announced that the City’s five public pension funds, running assets of $175bn, would divest their holdings in fossil fuel companies, worth around $5bn, within five years.
DiNapoli describes Stringer’s decision as – “with all due respect” – a “political statement”, and notes that not all of the City’s five public pension funds had signed on for the study into how the holdings will be divested.
The problem, DiNapoli says, is that “advocates [of divestment] don’t realise that if we sell the shares, someone else is going to buy them – these companies are not going to just go out of business. This notion that we are holding up the response to climate change because we are holding on to these stocks is really just wrong”.
Most of the New York State Common Retirement Fund’s holdings in fossil fuels and the energy sector are through passive investments in index funds, DiNapoli tells RI. Divesting these would mean the re-deployment of billions of dollars in a relatively short time frame, which, he says, could pose a risk to the fund’s funding status – currently one of the best in the country, at 98% funded.
“We can’t manage a pension fund by slogans or feel good notions,” DiNapoli says, adding that people are often “dismissive” of his fiduciary responsibility to secure the pensions of over one million people.
He does, however, cite both the fund’s divestment of gun manufacturers and private prisons as instances where the fund was able to divest based on ESG concerns because “frankly, there wasn’t an impact on our returns”.
The in-fighting over whether to divest or not among those generally aligned on the environmental imperative is “unfortunate” according to DiNapoli, especially when there is a “bigger enemy” in the form of the Trump administration.DiNapoli points to the decarbonisation panel he set up last year in response to Cuomo’s call for divestment, which has been tasked with providing “thoughtful” recommendations on mitigating climate change risk and transitioning to a low-carbon economy.
The panel, which includes Harvard’s George Serafeim and ESG stalwart Cary Krosinsky, is still in its early days, DiNapoli says. But he tells RI that its work could play a significant role in the fund’s future investment decisions and take it to the “next level on the climate issue”. Though he emphasises that he will not be required to implement any of the panel’s recommendations.
DiNapoli also rejects the notion that the State had fallen behind the City in its efforts to address climate change generally. Last month, New York Mayor, Bill de Blasio and Stringer announced that the City’s funds would commit $4bn to climate change solutions over the next three years.
New York State has “divested as much as New York City has”, DiNapoli says, although it “may have different press releases and announcements”. He adds that his fund has itself already invested around $7bn in sustainable investments. A significant portion of this (around $4bn) is invested in the low-carbon index the pension fund created with Goldman Sachs in 2015 but DiNapoli also highlights the fund’s investments in World Bank green bonds and “two large investments” in sustainable funds created by Al Gore’s Generation Investment Management.
New York State Common is also a member of the Climate Action 100+, the $32tn investor engagement initiative, and is currently leading the engagement with three companies deemed to be among the largest emitters of greenhouse gases: oil giant Exxon, US utility American Electric Power and US construction firm Martin Marietta.
RI was also told that the fund is also co-lead on the engagements with energy firm Duke Energy and Ford Motor Company.
Liz Gordon, Executive Director of Corporate Governance at the fund describes the initiative as “a huge endeavour” that is “trying to keep a lot of people moving in the same direction but its good, it is putting out key, consistent asks”.
Reflecting on his 15-year stint as Comptroller of the $209bn fund, DiNapoli tells RI that ESG has moved from being a “supplemental” consideration to something that is fully integrated into investment decisions.
Prospective investment managers and third-party advisors will always be asked about how they integrate ESG into their processes, DiNapoli says, adding that it is not unusual for managers with “weak or non-existent ESG policies” to develop or strengthen them to win New York State’s contracts. Though he concedes that this doesn’t mean that only managers with a “beautiful and robust ESG policy” would win mandates.
“We are like a big ship and it turns very slowly” he says, “but we are continuing to turn the ship with a priority on ESG”.
The election for the New York State Comptroller will take place on the 6 November.