A proposal in Albany to have the state pension system divest from fossil-fuel stocks is getting pushback from unions that fear doing so would be a real money-loser.
According to a report from Global Analytic Services, Inc., such a sell-off could result in a $200-million loss to the pension system over five years and mushroom into a $2.8-billion hit over 20 years.
The report, by an independent actuary, was commissioned by the Suffolk County Association of Municipal Employees, which represents 10,000 active and retired Suffolk County workers.
‘An Enormous Hit’
“Divestment would represent an enormous hit to public pensions,” according to the report. “The losses from divestment would also mean that the state and local governments would have to cut critical services or raise taxes to ensure that the pension is fully funded.”
The Global Analytic team looked at replacing the state pension fund’s $978 million in fossil-fuel holdings with alternative “green” funds and alternative-energy investments and found a major yield gap. Fossil-fuel investments returned 8 percent, while alternative “green” investments earned 5 percent and alternative-energy picks just 3 percent. Compounded over 20 years, that kind of earnings gap would make for a significant shortfall that would need to be made up.
“The most important driver of public-pension costs is investment performance,” said Bradley Heinrichs of the firm Foster & Foster, which also worked on the report. “Diverting nearly $1 billion in investment in fossil fuels into securities that earn lower returns could cost the plan sponsors tens of millions of dollars in increased-contribution requirements over just the next five years.”
“Our members have spent their entire careers making contributions to their pensions, which are protected under the New York State Constitution,” said Daniel C. Levler, president of the Suffolk County AME. “This report reaffirms the growing evidence that divestment does not protect public-sector pensions and does not align with the fiduciary responsibilities of the State Comptroller, who is obligated to achieve the highest returns possible for pensioners.”
“The results of this study should be considered very carefully by state legislators when considering fossil-fuel-divestment legislation,” said Thomas Mungeer, president of the New York State Troopers PBA. “If there was any doubt whether total divestment would hurt working families across the state, this report clearly demonstrates that it would. The PBA will continue to fight any legislation that jeopardizes our members’ pensions.”
Michael Carrube, president of the Subway-Surface Supervisors Association, was worried about a domino effect. “The SSSA is very concerned about the immediate consequences that fossil-fuel-divestment legislation would have on our members,” Mr. Carrube said in a statement. “If this passes in Albany, the City of New York will certainly look to mirror that legislation, and that would be very bad for my members and their retirement plans, and it would be equally bad for New Yorkers who would likely face steep tax increases or service cuts as a result. We will do all that we can to prevent that from happening.”
Their cause suffered a setback Dec. 19 when Governor Cuomo said he would join State Comptroller Thomas P. DiNapoli’s push for divestment of pension-fund investments in fossil-fuel companies, terming it a “de-carbonization” effort. He said he and Mr. DiNapoli were creating an advisory panel to help the state’s largest pension system shift its investments to clean technology and firms that are acting to arrest climate change rather than maintaining its holdings in more than 50 oil and gas companies that are among the world’s 100 most carbon-intensive.
‘Roadmap to Divest’
“The Common Fund remains heavily invested in the energy economy of the past,” the Governor said in a statement. “This proposal lays out a roadmap for New York’s $200-billion Common Fund to take responsible steps to divest from its fossil-fuel holdings.”
Boosters of the divestment strategy maintain that there is empirical scientific evidence linking society’s reliance on burning fossil fuels to global warming, which causes catastrophic sea-level rise, extreme weather patterns, and increased frequency of superstorms like Sandy. They also argue that fossil fuels are a bad investment.
“I am not familiar with the Global Analytic Services or their report, but have seen an analysis of the high risk of fossil-fuel investments due to the development of competing energy sources, international efforts to reduce fossil-fuel usage and other challenges,” said State Sen. Liz Krueger, one of the bill’s prime sponsors, in an interview in December. “No doubt that is why just two days ago, three of the world’s biggest financial institutions, the World Bank, ING, and AXA, all announced plans to divest from fossil fuels including coal, oil, and gas.”
‘They’ll Only Get Riskier’
She continued, “The fact is, fossil fuels are already a risky investment, and as the world tackles the climate crisis, they will only become riskier. New York’s pension fund should act now to divest within a responsible time frame, or we will be left holding the bag. Furthermore, our bill allows the Comptroller discretion if he believes divestment of any individual stock will damage the pension fund.”
“Bold action is needed now to mitigate climate change,” said Assembly Assistant Speaker Felix Ortiz in a statement issued when the measure was first introduced. “If we miss this opportunity to enact clean energy laws today, our children may face serious consequences. The Fossil Fuel Divestment Act sends a strong message that New York should not invest in companies whose profits depend on damaging our climate. Our investment strategies should mirror the state’s public policies. That is why I wholeheartedly sponsor this bill to take the state’s pension-fund monies out of the pockets of those who profit from fossil fuels.”
In the 1980s, a global divestment strategy that targeted South Africa’s apartheid government was widely credited with pressuring its leaders to release from prison Nelson Mandela, which hastened the end of apartheid. What started as college students calling upon their board of trustees to divest their endowment funds mushroomed into 200 U.S. companies pulling out $1 billion in direct investment in South Africa.
A myriad of divestment campaigns followed that aimed to use the strategy to halt the production of “cop-killer” or hollow-tipped bullets, and target tobacco companies and gun manufacturers. Last June, New York City divested itself of $48 million in stocks and bonds from private-prison companies.