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December 19, 2018

New York State Will Continue to Stand Firm Against Costly, Ineffective Divestment

The New York State pension will again be in divestment activists’ cross-hairs in 2019 as groups like 350.org plan a series of grassroots efforts to push Comptroller DiNapoli to sell the fund’s stocks in energy companies.  Despite the fact that such a gesture is of only symbolic value (read: sell just means other investors will just pick up the shares), does nothing for the environment, and is likely to have a significant negative impact on the fund’s returns, divestment activists have been relentless in their pursuit.

The logical fallacies of divestment have been pointed out again and again.  In fact, the divestment activists themselves acknowledge that divesting from fossil fuels only serves to “restrict the social license of the fossil fuel industry” and “stigmatize the fossil fuel industry.”

The fact that divestment isn’t a real solution to climate change is not lost on many New Yorkers.  In fact, the Suffolk Association of Municipal Employees noted in a recent study:

“Divestment is indiscriminate.  It pre-empts thoughtful fiduciary analysis to assess the impact on the Fund… Additionally, fossil fuels are meaningfully integrated into nearly every facet of the global business sector.  To divest immediately would be akin to telling the world not to breathe air.”

As did the Chairman of the New York Public Employee Conference, Peter Meringolo:

“We understand that climate change is real but what is lost in this debate is that there have been no studies proving that fossil fuel divestment would make any significant progress toward addressing climate change.”

Worse than the general ineffectiveness is the fact that the movement seeks to shame an industry that is constantly innovating to find new energy solutions on someone else’s dime.  In this instance, the more than one million members, retirees and beneficiaries that rely on the New York State pension system for their retirement. These are the state’s police, firemen, municipal workers and other state employees.

The cost these retirees are being asked to bear – to stigmatize an industry the world economy is reliant on—is not small.  In fact, a study conducted by Professor Daniel Fischel of the University of Chicago law School found that fossil fuel divestment could lead to returns 0.16%-0.23% lower annually.  This means losses of $136 million- $198 million annually, depending on the scope of divestment.  Or, to put it another way, these losses are equivalent to eliminating the average annual benefit of over 8,500 retirees.

Because of these losses (and the absence of any meaningful gain) State Comptroller Tom DiNapoli has so far refused to divest the state’s pension from fossil fuels, as such a step would conflict with his legally mandated fiduciary responsibility.  In his words:

“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.”

Comptroller DiNapoli’s fiduciary duty has also been highlighted by the General Counsel to the New York State Troopers and NYSPEC, Richard Mulvaney:

“[Fiduciary duty] is a legal mandate and any time a legislature wants to legislate or order [the Comptroller] to do something that is against his fiduciary responsibility he places himself and our pension in great legal peril.”

Not letting facts get in the way of a good story, divestment activists have ignored all of the above arguments against the policy, and instead attempted to paint the Comptroller as an industry lackey. In a recent Daily News article, one campaigner said:

“It’s our mission in 2019 to move DiNapoli away from Exxon and Chevron and the shell game he’s been playing, and over to our side, which is moving away from fossil fuels and investing in real climate solutions.”

In other words, their goal is to convince the New York State Comptroller to shirk from his legally mandated duty to maximize pensioners’ returns in favor of what activists (incorrectly) assume is a real climate solution.  Similarly, the movement’s leader, Bill McKibben taunts:

“DiNapoli is in danger of becoming a real joke on the greatest issue of our age.”

It seems New Yorkers disagree, as they re-elected the Comptroller to his third term last month with approximately 64.4% of the vote.  Turns out, his electorate really appreciates his fidelity to guarding their pensions and his ability to stand firm against the ineffective and expensive divestment trap.

Divestment does nothing to support the environment, but it is an easier goal for activists to achieve than looking for innovative, collaborative solutions to ensuring the world’s population has access to safe, secure, affordable, reliable energy that is produced in a way that protects the environment. Maybe it’s time for 350.org to focus on solutions and forget about empty, costly promises.