This article originally was published by Climate & Capital Media and is reprinted with permission.
In January, the city of New York announced with great fanfare that its massive public service retirement fund would jettison $4 billion worth of fossil fuel-related stocks and bonds. A month earlier, New York state announced an even more ambitious plan — to rebalance the entire $225 billion portfolio for its Common Retirement Fund to reflect a specific goal: net-zero carbon emissions by 2040.
These are the signals of intent that any proponent of climate action would welcome. And so Bill McKibben, the New Yorker writer and climate champion, was there that day, applauding from the video Zoom press conference with New York Mayor Bill de Blasio and other assorted city hall bigwigs. "The once-dominant fossil fuel industry has reached a low in financial and political power," McKibben wrote a month earlier in the New York Times.
Divest from the bad, invest in the good. There is no question it’s happening as never before. Investors around the world have committed to divest more than $11 trillion from fossil fuel companies, says350.org, the organization founded by McKibben.
Holding financial institutions accountable for divestment pledges
But now comes the hard part. Divesting is complex and multi-layered. When the fossil fuel divestment campaign was launched in 2018, many felt that any commitment was a good commitment to speed up action on climate change. Now, with ambitious 2030 carbon reduction less than a decade away, divestment proponents are demanding details about how and when such commitments will be honored.
However, it’s increasingly evident that the process is not yet transparent enough to hold institutions to account for their pledges. Since the headline announcement, New York has refused to divulge any further details on how it plans to divest. "It’s our policy to not comment on the implementation of divestment until complete, to avoid financial risks of moving markets by broadcasting specifics," says Skye Ernst, a spokesperson for city Comptroller Scott Stringer, who oversees the retirement funds.
It could be 5 years before New York City releases divestment results
That makes sense until you realize they mean they may not make further announcements for as long as five years. "The names of companies and the final scope of the divestment will be released following the sale of all targeted securities, which will be completed in a prudent manner to achieve best execution. The divestment is expected to be complete within the original five-year timeline," says the release.
This makes one a little uneasy given the financial heft behind some prime divestment suspects. According to the New York City’s Retirement System (NYCERS) 2020 annual financial report, Exxon Mobil Corporationand Chevron are two of the fund’s top 40 U.S. domestics stock holdings. Other large fossil fuel securities holdings include Occidental Petroleum and Warren Buffet’s Berkshire Hathaway, whose portfolio of companies includes many with large interests in coal, natural gas and solar energy.
The New York Teachers Retirement System fossil fuel holdings also include ConocoPhillips, Marathon Petroleum, Murphy Oil and French energy giant Total.
A secret strategic divestment strategy document appears in public
Refusing to name names is not the only thing NYC is doing to shield its divestment strategy from public scrutiny. It took a Freedom of Information Act request from the nonprofit Divest Now to make public a previously confidential series of divestment reports prepared for the city by asset management giant BlackRock, which interestingly uses 350.org’s research as the basis for its analysis.
That these reports were kept secret is baffling. Although still heavily redacted, the divestment reports should be music to the ears of divestment proponents. Former acting New York State Comptroller Tom Sanzillo said he was delighted that the world’s most influential asset manager had just given divestment the "Good Housekeeping seal of approval."
Institutional investors all over the world, he said, should be assured by the reports’ finding that funds can pursue a divestment strategy without giving up, and possibly even improving investment returns with portfolios without fossil fuel companies.
"Profits [of fossil fuel companies] are declining. Their future growth is under a cloud, so why bother holding them?" says Sanzillo, now director of financial analysis at the Institute for Energy Economics and Financial Analysis.
When is divestment not divestment?
Yes — but. The BlackRock reports also highlight a catch in the city’s divestment policy that ought to ruffle some feathers. For instance, if certain unnamed fossil fuel companies can prove to the city that they have developed a sustainable business strategy for a "lower carbon" economy, those companies may remain in New York’s investment portfolios.
Such a "keep the good fossil fuel companies" strategy is fatally flawed, says Brett Fleishman, a senior global analyst for 350.org. (For one thing, it’s not at all clear what would serve as such "proof.") Fleishman points to research from the Big Oil Reality Check, which he says proves "there simply is not a fossil fuel company that is a beneficial investment, given commitments to cut emissions in half by 2030." That BlackRock even considered suggesting this option, he said, was "dangerously myopic investment advice for a public pension portfolio."
Why the city tried to keep the BlackRock reports from public scrutiny puzzles many climate activists. As one veteran divestment leader said, the BlackRock report confirmed that there is "nothing moral about this [divesting]; the financial performance gains are clear. This worm has turned, and BlackRock is doing the lobbying for us now."