Legislation that would mandate the New York Common Retirement Fund (CRF) to divest from a list of approximately 200 fossil fuel-heavy companies is facing stiff opposition from fund officials.
The Fossil Fuel Divestment Act would require the CRF to divest from all holdings in coal companies within one year, and divest from all other fossil fuel companies within five years. The CRF has approximately $5 billion invested in such companies.
During an April 30 hearing, Anastasia Titarchuk, interim CIO for the New York Common Retirement Fund, voiced what she calls “fundamental issues” with the act, namely centered around how it decides which companies to divest from, and its mandatory divestment orders.
“The bill chooses a single factor, fossil fuel reserves measures as carbon content as the metric for divestment—this is a poor measure of investment risk and a crude measure of the climate impact of a company,” Titarchuk said at the hearing. “Reinventing the investment strategy of a $200 billion pension fund requires significantly more study and nuance than generating a list of 200 companies based on a single factor. It would be impossible to argue that this is consistent with fiduciary standards.”
Titarchuk continued that the legislation lacked sufficient professional expertise and advice during its inception, thus falling short of the necessary components to be acted upon.
“Any decision to restrict or sell investments must be for the overall benefit of the fund, must be based on the prudent advice of investment professionals, and must be an economic analysis demonstrating that it will not have a negative impact on the fund. This legislation fails to meet these fundamental requirements,” she said.
Bevis Longstreth, former commissioner of the Securities and Exchange Commission (SEC), also presented his opposition to the proposed bill, criticizing its “mandatory approach” and explaining the profound influence New York’s decision can have on other pensions’ portfolios.
“A fiduciary’s duty of care and managing money cannot be successfully legislated, so history teaches,” Longstreth said. “The proposed bill seems more like striking a blow against the fossil fuel industry than it helping to manage the fund.”
New York “will have demonstrated a leadership likely to be emulated across the country. Acting out of compulsion is not leadership. The mandatory approach could even prove counter-productive, making divestment without legal compulsion appear inconsistent with fiduciary duty, and that would be a perverse effect.”
However Daniel Zarrilli, chief climate change policy advisor for Mayor Bill DeBlasio’s office, touched on the hypocrisy of the dual existence of the city’s green initiatives and investing billions of dollars into companies that pursue contrasting goals.
“We’re taking a very deliberate approach—we know we have to do this the right way, and keep to our fiduciary obligations, but we feel it’s incumbent upon us to pursue this path to protect the future of our pensions,” Zarrilli said.
“If we continue to cut our own greenhouse gas emissions and continue to work to end our reliance on fossil fuels, but we’re still invested in those fossil fuel stocks, then we’re betting against ourselves, and that doesn’t make much sense.”
New York state Sen. Liz Krueger, the primary sponsor for the bill, highlighted the fiduciary nature of the bill, alongside its obvious environmental concerns. “Divesting our state pension fund from fossil fuels will protect workers and retirees from the rapid loss of valuation that fossil fuel companies will suffer in the coming energy transition. Not only does fiduciary responsibility permit divestment, we are soon approaching the time when it will compel divestment,” Krueger told CIO. “New York state should be a leader on this issue, to ensure that our retirees and their children and grandchildren will not only have a pension to enjoy, but also a livable planet on which to enjoy it.”
Toby Heaps, CEO and cofounder of Corporate Knights Inc., added, “I believe it’ll take the pressure of institutional investors and the investment community walking to the exit doors in order for fossil fuel companies to grasp the gravity and the speed of the transition, and the opportunity to advance to renewable assets.”
A study group recently concluded that the CRF should strive to ensure that all of its assets are sustainable by 2030.
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Tags: ESG, Fossil Fuels, New York State Common Retirement Fund, Pension