New York State Comptroller Tom DiNapoli — – the office in charge of running the state pension fund on behalf of over 1 million New Yorkers — responded last night to divestment calls from New York Gov. Andrew Cuomo this week, once again noting that he does not have plans to divest.
The Governor’s announcement calls on the New York State Common Retirement Fund to divest by “ceasing all new investments in entities with significant fossil fuel-related activities” and creating a joint advisory committee for the fund “to develop a de-carbonization roadmap to invest in opportunities to combat climate change and support the clean tech economy while assessing financial risks and protecting the Fund.” The effort both ignores previous statements from the Comptroller’s office rejecting this costly investment plan, and the millions divestment would cost New Yorkers.
In his response, Comptroller DiNapoli emphasizes the fund has “no immediate plans to divest our energy holdings” and instead that the fund has “shown that shareholders have the power to compel major corporations” through its engagement, something divesting would make impossible to pursue.
DiNapoli also pointed out the fund’s proactive efforts to invest in sustainable investments and look for companies that are committed to reducing their emissions, a much better path than divesting and merely removing oneself from investments and having no impact on the environment or targeted companies. As First Deputy Comptroller Pete Grannis highlighted at an October divestment forum at Baruch College, “We’re not social investors” but instead “We are investors that use our voice based on the best available economic information we can get and where we think we can have the best impact.”
Last but most importantly the comptroller states, “I will continue to manage the pension fund in the long-term best interests of our members, retirees and the state’s taxpayers.” This fiduciary duty means investing in a responsible manner – a tenant divestment stands in direct contradiction to. In fact, according to a 2017 report from Prof. Daniel Fischel of the University of Chicago Law School, divestment would cause the New York City Employee Retirement System (NYCERS) to suffer between $502 and $692 billion in lower returns over 50 years due to lost diversification benefits from dropping a key part of the economy. The annual impact for NYCERS ranges between $41 and nearly $60 million. Add in the management and transaction costs of maintaining a “fossil-free” fund, and the number only grows. CalPERS also highlights that divestment from non-energy stocks has imposed an over $8 billion financial loss on the fund. These are not the types of costs New York state can afford.
The announcement from the Comptroller’s office is in line with its repeated refusals divest. In December 2015, DiNapoli wrote to State Sen. Liz Krueger in the midst of a legislative push to mandate fossil fuel divestment statewide that divestment contradicts his fiduciary duty, stating:
“My fiduciary duty requires me to focus on the long-term value of the Fund. To achieve that objective the Fund works to maximize returns and minimize risks. Key to accomplishing this objective is diversifying the Fund’s investments across sectors and asset classes – including the energy sector, where fossil fuels continue to play an integral role in powering the world’s electricity generators, industry, transportation and infrastructure.”
A 2017 piece in the Albany Times Union reiterates this position, noting:
“As First Deputy Comptroller Pete Grannis, who served as commissioner for the Department of Environmental Conservation, said: ‘Who’s going to buy those shares that you are going to be divesting?’ Companies can easily find other investors. DiNapoli, a Democrat and environmental advocate who has increased the state Common Retirement Fund’s green portfolio, also opposes turning over investment decisions to politically minded legislators. ‘My fiduciary duty requires me to focus on the long-term value of the Fund,’ he said, arguing that his team’s job is to make the most financially beneficial decisions on behalf of the CRF’s retirees and workers.”
DiNapoli has also highlighted the hypocrisy of divestment, stating in the New York Times “It’s great to say you’re for divestment, but if you get in your car and fill the gas tank on the way to the rally, it undercuts your argument.” He continued, “Every organization, every business, has a fossil fuel footprint. We have a real challenge out there that goes beyond whether you have Exxon Mobil stock.”
The announcement from the Governor’s office should come as little surprise as it has has long limited energy development in the state, instating a ban on hydraulic fracturing and thereby limiting economic development in the southern tier of the state – an area in desperate need of economic empowerment – and ignoring the opinions of academics, other democrats, and community members.
Divestment from fossil fuels would only mean more costs for New Yorkers, this time for participants that rely on the pension fund for stable returns. Gov. Cuomo may be happy to play politics with New Yorkers’ retirements for an empty gesture like divestment, but hopefully Comptroller DiNapoli will continue to reject this ineffective and costly effort.