New York's $322 billion pension fund is dropping fossil fuel stocks

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New York state's pension fund, one of the world's largest and most influential investors, will drop many of its fossil fuel stocks in the next five years and sell its shares in other companies that contribute to global warming by 2040, the state comptroller said Wednesday (US time).

With $322 billion in assets, New York's fund holds sway over other retirement funds, and its decision to divest from fossil fuels could accelerate a broader shift in global markets away from oil and gas companies, energy experts and climate activists said.

The announcement comes months after the fund moved to sell its stock in 22 coal companies. New York City, San Francisco, Washington, D.C., and several smaller cities have also committed to fossil fuel divestment plans, but New York state's commitment to such a sweeping step is more significant, especially given the state's centrality to the global financial markets.

The state comptroller, Thomas P. DiNapoli, had long resisted a sell-off, saying that his primary concern was to safeguard the taxpayer-guaranteed retirement savings of 1.1 million state and municipal workers who rely on the pension fund.

But Wednesday, DiNapoli signalled that the main goal was to set up the fund for long-term economic success in a world moving away from fossil fuels. "New York state's pension fund is at the leading edge of investors addressing climate risk, because investing for the low-carbon future is essential to protect the fund's long-term value," he said in a statement.

He said the fund could drop stocks that do not meet its new standards, requiring them to show "future ability to provide investment returns in light of the global consensus on climate change."

DiNapoli, who is the fund's sole trustee, has joined other investors who have concluded that energy companies that do not reshape themselves to part with oil and gas are poor long-term bets, and who seek to use their financial clout to address the threat of climate change.

New York's decision is a setback for oil and gas companies and for industry groups like the Independent Petroleum Association of America. Facing a recent slide in the value of their stocks, the companies have argued that fund managers' first responsibility to retirees and other investors is to maximise profits and that being an active shareholder is the best way to curb pollution.

"Clearly this will put pressure on companies to be much more transparent about how they'll transition away from fossil fuels and reduce emissions," said Alice C. Hill, a senior fellow at the Council on Foreign Relations who studies climate risks.

Pension funds, she added, are conservative investors that have been reluctant to make decisions seen as political, "so for a major investor to say we're getting out of this business sends a very strong market signal that climate change is a financial risk."

New York's fund, the New York State Common Retirement Fund, has historically invested about $17 billion in fossil fuels. Now it is committing to sell its investments in any oil, gas, oil-services and pipeline companies that do not have clear plans to abandon the fossil fuel business. Few companies have disclosed such plans.

The fund is also pledging to push other companies it invests in to reduce the amount of planet-warming greenhouse gases that they and their suppliers emit. The fund will sell its stakes in the firms if they have not eliminated such emissions by 2040, according to the announcement. The plan could free up billions of dollars for potential investment in renewable energy and carbon-neutral industries, analysts said.

Richard Brooks, a senior strategist with climate advocacy group 350.org, welcomed DiNapoli's announcement.

"People now understand that it's pension funds and universities and asset managers who are all enabling this industry, propping it up and allowing it to continue to pollute in communities, cause climate change and lobby against meaningful climate action," said Brooks, whose group was one of 40 climate advocacy and retiree organisations that had waged an eight-year campaign to persuade New York institutions to shift their investments.

He added, "It's part of a larger movement, increasingly including some banks and insurance companies, to reshape the financial industry in the U.S."

The movement is growing around the world, with pension funds in the United Kingdom, Ireland and Sweden adopting divestment plans. António Guterres, the United Nations secretary-general, has urged governments, foundations and universities to follow suit.

According to DivestInvest, a group that tracks and promotes the divestment movement, 1,246 institutions and nearly 60,000 individuals have committed to shedding their investments in fossil fuels. The total combined value of their portfolios is $20 trillion; their fossil fuel assets are only a portion of that sum since most large institutions invest across a range of sectors.

The movement to dump fossil fuel stocks began as an effort to make an ethical statement and to cast polluters as pariahs, much like the push to divest from apartheid-era South Africa. But as the market shifts, coal and increasingly oil and gas have become riskier investments.

The Paris climate agreement, which set targets for reducing greenhouse-gas emissions, increased pressure on the industry. Under President Donald Trump, the United States is no longer part of the global climate accord, but President-elect Joe Biden has pledged to rejoin.

Since 2012, when Hurricane Sandy killed more than 100 people and caused tens of billions of dollars in damage, climate-related issues have taken on new importance in finance and politics, especially in New York.

Committing to the divestment plan in the depths of the COVID economic crisis, analysts say, reflects a confidence among some fund managers that unloading such stocks is their fiduciary duty, a responsibility to act in the best interests of shareholders and investors.

The fossil-fuel divestment movement has also grown on U.S. college campuses. It accelerated after huge climate protests in New York and around the world in 2019 and this year as extreme weather wreaked havoc and protests against structural racism highlighted climate change's disproportionate effect on low-income communities of colour.

Written by: Anne Barnard
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