Relates to limitations on investments of public pension funds

Summary of provisions

Section 1: Names the bill.

Section 3a: Amends the Retirement and Social Security Law to prohibit the State Comptroller from investing monies of the Common Retirement Fund in of the top 200 companies that hold the largest carbon content fossil fuel reserves. Divestment from coal companies must be completed within one year; divestment from all other fossil fuel companies must be completed by January 1, 2020.

Section 3b: Permits the Comptroller to cease divestment or reinvest in previously divested companies if he/she can demonstrate that as a direct result of such divestment the Fund has become or shall become: (i) equal to or less than 99.5 per cent; or (ii) 100 per cent less 50 basis points of the hypothetical value of all assets under management by, or on behalf of, the Fund assuming no divestment from any company had occurred.

Section 3c: Requires the Comptroller to identify all companies subject to divestment in which the Fund has holdings, and to report annually on the progress of divestment.

Justification

Climate change is a real and serious threat to the health, welfare and prosperity of all New Yorkers. Maintaining the status quo of fossil fuel energy production will unquestionably lead to a self-created catastrophe. Therefore the State of New York has a responsibility to take steps to avert this disastrous result. Divesting the New York State Common Retirement Fund from all investments in fossil fuels, as mandated by this legislation, is far from a silver bullet, but it is one important step among many necessary to move our climate away from the precipice.

The consensus of the international scientific community is that climate change will lead to rising sea levels, increasingly intense storm events and droughts, as well as threats to global water and food supplies and loss of critical biodiversity, threatening lives, livelihoods and the integrity of our society. Among the risks New York faces are:

*Harm to human health and safety

*Increasing healthcare costs

*Increasing costs to municipalities and local governments

*Higher insurance costs

*Loss of property value

*Contamination of water and soil

*Deforestation

*Loss of wetlands

*Losses to agriculture, fisheries, and tourism

*Destruction of homes and displacement of families and communities

The 2009 Copenhagen Accords stated that an increase in global average temperature of more than 2Ö C would lead to an unsafe risk of irreversible climate change. In order to stay below 2Ö C, there is a limit to the amount of carbon dioxide emissions that can be released globally through the burning of fossil fuels - 886 Gigatons between the years 2000 and 2050. 321 Gt have been burned from 2000 to 2010, leaving a remaining carbon budget of approximately 565 Gt. Currently proven fossil fuel reserves belonging to private and public companies total an overwhelming 2,795 Gt of potential emissions, not including as-yet undiscovered reserves that fossil fuel companies spend billions of dollars each year to find. This means that in order to avoid causing catastrophic climate change, at least 80% of all current proven coal reserves, half of gas reserves and one third of oil reserves must stay in the ground.

The State Common Retirement Fund, with an estimated value of over $180 billion, invests at least $5.12 billion in public pension money in companies that mine, drill and produce fossil fuels. The CRF is one of the largest and most visible institutional investors in the world. By divesting from fossil fuels, the CRF will send a message that it is unacceptable for any institution to profit from activities that threaten the future of our society, and will begin the process of delegitimizing a business model that, while financially profitable in the short run, is socially and morally bankrupt. As a state we cannot commit to the steps necessary to prevent climate change while maintaining a financial interest in companies whose profits depend on the continuation of practices that cause climate change. As Upton Sinclair wrote, "it is difficult to get a man to understand something when his salary depends on his not understanding it."

The Office of the State Comptroller has made a significant effort to use stockholder engagement to influence the actions of climate-damaging fossil fuel companies. However, these companies have largely ignored entreaties from OSC and other institutional investors, played down the threat posed by climate change, and scoffed at the possibility of changing their way of doing business. In the end, the profitability of fossil fuel companies is based solely on their ability to supply far more carbon than the atmosphere can safely absorb, a business plan that is at odds with physical reality, making stockholder engagement a futile endeavor and demonstrating the necessity of divestment.

Divestment is wholly in accord with the state's fiduciary responsibility to protect the value of the pension fund. Numerous business, financial and government leaders worldwide have warned that investing in fossil fuel companies undermines the soundness of investment portfolios, including the governor of the Bank of England,

Mark Camey; the President of the World Bank, Jim Yong Kim; and former Treasury Secretary Henry Paulson. Given the growing understanding of the reality of climate change and the increasing likelihood of national and international action to reduce fossil fuel use, companies whose value is based on unburnable carbon reserves risk rapid devaluation as a result of these stranded assets. A prudent fiduciary must also take into account the broader risk of economic and market disruption posed by climate change, the evidence of which has already been seen in the aftermath of Superstorm Sandy and other extreme weather events. To further address concerns about meeting fiduciary obligations, this bill contains a financial safety valve that would permit the Comptroller to cease and/or reverse divestment if he or she can demonstrate significant loss of value to the CRF as a direct result of divestment.

This bill provides a five-year horizon for completion of divestment from all fossil fuels (including coal, oil, and natural gas) in order to maximize flexibility and minimize financial risk. However, divestment from the coal industry in particular is an urgent financial and environmental necessity, and it is therefore specially mandated to occur within one year. The CRF has already lost over $100 million through coal investments in the past three years at a time of generally strong market growth, and those investments are not likely to recover. Coal is one of the dirtiest, most carbon intensive sources of energy, emitting more carbon dioxide per unit of energy produced than oil or gas. Recent analyses have found that over 80% of worldwide coal reserves, including 90% of US reserves, must stay in the ground in order to stay below the 2Ö C limit.

In taking the responsible step of divesting from fossil fuels, New York would take a leading role in a global movement that includes more than 160 institutions and local governments, including The New School, and Stanford and Syracuse Universities; the cities of Seattle, San Francisco, Portland, Minneapolis, and Ithaca; the World Council of Churches, and the United Methodist Church USA; Guardian Media Group and the Rockefeller Brothers Fund; and the sovereign wealth fund of Norway.

Divestment is financially prudent, morally imperative, responsible policymaking, and the time for action is now.

Fiscal implications

Undetermined

Effective date

This act shall take effect immediately.