Could New York’s Youth Finally Convince the State to Divest Its Pension of Fossil Fuels?

One analyst says oil, gas and coal were the biggest pension contributors for 30 years, but now are the worst performing sector—and there are no signs of improvement.

May 15, 2020
Youth climate strikers gather at New York City's Foley Square on Sept. 20, 2019, to participate in what's believed to be the largest global climate protest ever organized. Credit: Kristoffer Tigue/InsideClimate News

Youth climate strikers gather at New York City's Foley Square on Sept. 20, 2019, to participate in what's believed to be the largest global climate protest ever organized. Credit: Kristoffer Tigue/InsideClimate News

Despite never having heard of a pension plan before this year, 18-year-old Natalie Penna finds herself discussing New York state's retirement fund, and its role in financing the fossil fuel industry, quite a lot lately.

"We're investing in these things that will temporarily benefit the people who are making money off it in their pensions, but what's left for us afterwards?" she said. "What's the world going to look like for us?"

Penna, who typically spends her free time running on the track behind her school or carefully mixing oil paints to splatter on a canvas, has found a new passion in lecturing lawmakers on the dangers of investing in fossil fuels. The Albany High School senior is one of hundreds of youth from across New York now urging state legislators and other officials to divest the nation's third largest pension system of its fossil fuel holdings, arguing that failing to do so ignores the reality of climate change and goes against the state's mandated emissions reduction targets.

Last year, Gov. Andrew Cuomo signed a law that says the state must transition its power sector to net-zero emissions by 2040 and reduce the state's overall greenhouse gas emissions by 85 percent from 1990 levels by 2050.

 

In April, a day before Earth Day's massive virtual gathering, Penna and about 150 other youth met with nearly 40 New York lawmakers or their staff online, asking them to support a bill that would force the New York Common Retirement Fund to divest from fossil fuel companies within five years. As of last year, the fund had nearly $211 billion in assets under management and currently has about $5 billion in fossil fuel holdings, according to the New York State Comptroller's office.

The bill, known as the Fossil Fuel Divestment Act, has been introduced in the New York Senate four years in a row but has never made it out of committee. But as youth climate strikers who are sheltering in place seek ways to spread their message without marching in the streets, the once stalled legislation has quickly gained support this year.

Teenage activists with New York Youth Climate Leaders, an advocacy group, virtually meet with New York Sen. Liz Krueger to talk about divesting the state's pension from fossil fuel holdings.

Teenage activists with New York Youth Climate Leaders, an advocacy group, virtually meet with New York Sen. Liz Krueger to talk about divesting the state's pension of fossil fuel holdings. The group lobbied nearly 40 state lawmakers last month on the day before Earth Day.

Though still in committee, the bill has already received majority support in the state Senate with 33 sponsors. It's counterpart in the state Assembly currently has 58 sponsors and needs 76 votes for passage. If passed by both chambers, New York would be the first state in the nation to commit to divesting its pension entirely of companies that make their money from producing, selling or burning fossil fuels.

"It's absolutely in a stronger place than it's ever been before," said Sen. Liz Krueger, a Democrat and the bill's original sponsor. "And I absolutely believe it is young advocates who are making the difference."

 A Stalled Campaign Breathes New Life

It's certainly not the first time New York officials have heard calls for fossil fuel divestment. After Hurricane Sandy slammed the New York coastline in 2012, environmentalists urged officials to pull fossil fuel companies out of both the city and state pensions, arguing more needed to be done to curb climate change. But only in recent years, and particularly since January, have those calls started producing any real results.

In 2018, trustees for three of New York City's five public pensions vowed to divest from all fossil fuel companies in their funds' holdings starting in 2023. And in January, New York State Comptroller Thomas DiNapoli also said his office was reviewing whether to divest the state's fund from 27 coal companies—a decision he said his office would likely finalize by mid-June.

Then earlier this May, amid mounting public pressure, JPMorgan Chase, the world's largest funder of fossil fuel companies, announced that the former Exxon CEO Lee Raymond would no longer serve as its lead independent director starting this fall. Raymond has a long history of voting against climate action in shareholder resolutions. Among those calling for his departure was New York City Comptroller Scott Stringer.

New York's divestment movement has gained more momentum in the last couple years than it has in the last decade, said Richard Brooks, who leads the divestment campaign for the climate advocacy group 350.org. The injection of young energy since the emergence of the youth climate movement is breathing new life into a once stalled campaign, he said.

But Brooks also points to Stringer and New York City Mayor Bill de Blasio, calling them "champions" of the movement. As voting members of the city's pension boards, the two have been vocal proponents for divestment and "have been able to secure the support of the other trustees," Brooks said.

A press release from the city's comptroller's office says the city is on track to unveil the specifics of its divestment plan by the end of the year. That plan will phase out about $3 billion in fossil fuel holdings from three of the five funds that make up the city's $211 billion pension system in three years.

Of the five funds that pay the pensions for New York City employees, including teachers, city workers and board members, only the funds for police officers' and firefighters' pensions have refrained from signing onto the city's divestment plan.

All Eyes on DiNapoli

Having landed a major victory at the city level, activists are now focusing their attention on Comptroller DiNapoli's office, where their calls for divestment have been received with far less embrace. As the sole custodian of the New York Common Retirement Fund, DiNapoli has final say on how the pension will invest its money.

If DiNapoli agreed to divesting, "there wouldn't be a campaign here," 350's Richard Brooks said. "He is the main hurdle."

Unlike New York City Comptroller Stringer, DiNapoli has been wary of making any pledges of divestiture, calling it a "blunt tool" that limits his ability to invest flexibly and in the best interest of state pensioners. Outright divestment before exercising less severe measures—such as buying less stock from problematic companies—could hurt the fund's ability to generate the more than $1 billion required to pay out state pensioners each year, he argues. 

"My prime agenda is protecting the retirement security for 1.1 million New Yorkers," DiNapoli said in an interview. "The advocates are attempting through the legislation to turn the pension fund into a political football."

But proponents for divestment say phasing out fossil fuels is the safe financial choice now, as the industry, and especially coal, continue to lose value. Energy stocks have been the worst-performing sector over the last decade. And renewables have been steadily gaining on coal, and are expected to overtake it as a leading source of electricity by the end of the year—a trend accelerated by the economic disruption of coronavirus.

Some case studies have also shown that divesting has actually improved the performance of funds. After the $1.1 billion Rockefeller Brothers Fund, a philanthropic foundation, divested from   fossil fuels five years ago, it has posted an average annual net return of 7.76 percent, compared to an index fund that included coal, oil and gas holdings, which returned 6.71 percent annually, according to a case study the fund released this week. (RBF is a funder of InsideClimate News). 

In New York, activists claim the state's pension is already losing money to fossil fuel investments. An analysis by 350.org says the New York Common Retirement Fund lost $1.5 billion on oil and gas stocks from March 2019 to March of this year. DiNapoli refutes that claim and says the analysis is inaccurate.

Tom Sanzillo, the director of finance at the Institute for Energy and Economics and Financial Analysis and former New York state comptroller, said fossil fuel company stocks were the biggest contributors to state pensions for 30 years, but today they're the worst performing sector and there are no signs they'll improve. "For that reason, and that reason alone, Tom DiNapoli has no financial rationale for being in fossil fuels," he said.

DiNapoli, a Democrat, hasn't been unresponsive to activist calls to address climate change. Last year he released a plan that aims to encourage companies in the state's portfolio that are contributing most to global warming to change their behavior by engaging their boards. The plan also created a $4 billion "Low Emission Index," which DiNapoli's office says has a 75 percent lower carbon footprint than the Russell 3000 (the index New York's pension fund is modeled after).

If DiNapoli holds his ground on divestment, the only course forward for activists would be Krueger's bill. But with the end of the state's legislative session fast approaching this June, and with coronavirus complicating how policymakers can vote on bills, it's unclear if the Fossil Fuel Divestment Act will make it to a full Senate vote this year. Still, Krueger, and the climate activists backing the bill, remain hopeful.

For Natalie Penna of Albany High School, she plans to keep fighting for the bill and rallying other youth to the cause. Climate change is "something that will end up affecting us all," she said. "Standing by and thinking other people will fix the issue is not the way to go."

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