By Danielle Muoio
NEW YORK — National environmental advocates flanked Bill de Blasio in January as the mayor announced the first steps toward stripping $5 billion in New York City pension fund investments from Big Oil. Fossil fuel corporations have profited from “horrible, disgusting” practices, de Blasio said, and New York has to be a “beacon to the world. … We have to show it can be done.”
But de Blasio’s proposal — which was not actually to divest, but to simply study its effects — immediately drew skepticism from New York City’s five pension boards, which worried that dropping oil and gas stocks would hurt their retirees’ financial futures. The police pension board quickly rejected the idea. The firefighters’ board tabled the notion. Trustees on the other three boards approved the study, but still expressed wariness.
It turns out that even in some of the country’s bluest states and cities, the notion of threatening pensions in pursuit of a healthier environment is proving a tough sell.
Ambitious Democratic politicians across the country seeking to burnish their green credentials, like de Blasio, are increasingly taking up the flag of divestment. But they’re frequently finding themselves in an unusual battle with their traditional allies in organized labor. Unions contend that divestiture may be a politically expedient rallying cry for liberals, but they say it’s coming at the expense of real fiscal concerns about the health of public employee pension systems, which experts describe as increasingly underfunded.
“This should not be funded on the backs of our members and the city members that belong to NYCERS,” said Michael Carrube, president of the Subway Surface Supervisors Association union, whose pensions are funded through the New York City Employees’ Retirement System.
And the state’s comptroller, Tom DiNapoli, has his own concerns. “We all know that public pension funds are often under attack … so you really need to look carefully at these kinds of questions,” said DiNapoli, a divestment opponent, in an interview. “We have to really be concerned about the bottom line.”
Pecuniary concerns seem to be winning out over environmental ones from coast to coast.
In Seattle, former Mayor Ed Murray called on the city’s board last April to divest from coal companies and start re-evaluating its position on fossil fuel investments. But the board ultimately voted against coal divestment in July, citing its fiduciary duty to pension holders, The Seattle Times reported.
California, arguably one of the most progressive states on environmental issues, has stalled in its push to divest in a significant way from fossil fuels, despite vocal support from powerful state leaders.
So far, despite rosy predictions by de Blasio — whose national political ambitions are no secret— New York City’s efforts also have long way to go to match the mayor’s lofty rhetoric.
The mayor and New York City Comptroller Scott Stringer, who joined him for the January announcement, presented the $5 billion divestment as a fait accompli, to the cheers of environmental advocates.
“The further we go into this, the more it becomes clear there is no financial reason not to take an important moral stance,” said Bill McKibben, co-founder of pro-divestment 350.org, who sat at the dais during the divestment press conference. “Washington, D.C., did it already. … This is the smart money getting out.”
But Stringer and de Blasio don’t actually control how the pension funds invest — or divest — their money.
The city’s roughly $191 billion pension system is made up of five separate funds, each governed by its own board of trustees. Stringer and a mayoral representative sit on each board but control a majority on none. They share board leadership with representatives from various city unions, such as the Uniformed Firefighters Association, the International Brotherhood of Teamsters and de Blasio’s oft-antagonists at the Patrolmen’s Benevolent Association.
There is no consensus among the city’s pension fund boards that the city should pursue divestment.
A few weeks after his announcement with de Blasio, Stringer introduced a resolution merely to study the fiscal implications of the proposed $5 billion divestment. Three of the five boards — the New York City Employees’ Retirements System, Teachers’ Retirement System, and the Board of Education Retirement System — voted to pass the resolution.
“What they’re really doing is studying it,” DiNapoli said. “Maybe they’re studying it with a lot of fanfare at the front end, but at this point they’ve divested as much as we’ve had, meaning nothing.”
Divesting $5 billion in holdings is no drop in the bucket, and some say it’s too risky since the city’s pension funds are already underfunded, forcing city taxpayers to increase their contributions.
The city’s underfunded liabilities range from $65 billion to $142 billion, according to a report by the American Council for Capital Formation. Taxpayer contributions to the funds have also increased within that timeframe, from $1.4 billion in fiscal year 2002 to $9.3 billion in fiscal year 2017.
The report focuses on how Stringer has increased investments in underperforming yet politically palatable assets, like the Developed Environmental Activist asset class, even as the pensions continue to stagnate.
“If the plan is to divest from the carbon-rich or carbon-high producing companies and focus on [Environmental, Social And Governance Criteria], the ramifications could be pretty bad for retirees,” said Tim Doyle, vice president of policy and general counsel at the ACCF. “When they talk about it, they don’t talk about it in the terms of studying it, they talk about it in terms of it being done, and obviously that is concerning.”
Union leaders have also expressed concern that divestment could lead to higher employee contributions and, ultimately, a loss in savings. While the New York City Employees’ Retirement System, by far the largest pension fund, voted to approve Stringer’s study, actually pulling the trigger on divestment will likely face more significant opposition.
“I got from it that there are a lot of really positive things, but it’s really expensive to implement,” said Roy Richter, president of the Captains Endowment Association, at a recent hearing on the topic. Richter sits on the board overseeing the Police Pension Fund.
The obstacles that organized labor presents to the fossil fuel divestment movement are not unique to New York City.
While the pressure to take action on climate change has grown with each freakish weather event, demands for action gained more traction last year, when the Trump administration withdrew from the landmark Paris accord and began rolling back Obama-era policies aimed at slashing greenhouse gas emissions.
And yet so far, divestment advocates can point to few substantial successes in the world of public pensions.
In 2016, Washington, D.C.’s largest pension fund — the District of Columbia Retirement Board — dropped $6.5 million in oil, natural gas and coal direct investments, a pittance for the $6.4 billion fund.
Stringer backed an effort to divest coal from the city’s pension system in 2015. Since then, the city has dropped its holdings in thermal coal, but that too represents a small investment overall.
Fiduciary leaders are not convinced that going further makes sense. DiNapoli is a proponent of maintaining large stakes in the fossil fuel industry in order to have a greater say in its behavior. Until recently, Stringer, a likely mayoral candidate in 2021, subscribed to the same theory.
Moreover, DiNapoli said divesting from fossil fuels would have a more consequential impact than any other divestment strategy that the state has pursued.
“When we’ve divested in the past … it was a multiyear process, and in the end we divested about $78 million of holdings in that process,” he said. “The impact on the fund is a much more consequential one for fossil fuels.”
In 2015, Kevin de León, president pro tempore of the California state Senate, sponsored a bill requiring the state’s two pension funds to divest from thermal coal and start looking into pulling out of fossil fuel holdings.
Since de Leon’s bill was signed into law, the California Public Employees’ Retirement System and California State Teachers’ Retirement System have started the process of divesting their coal funds. Both pension funds were given until July 1, 2017, to liquidate their thermal coal assets.
CalPERS has yet to disclose how much it’s divested from coal but will do so for the first time in a November report, a spokesman for the pension fund told POLITICO. CalSTRS informed the legislature on Dec. 31 that it has divested all of its holdings in thermal coal companies.
In both cases, coal divestment was a relatively easy sell compared with the states’ more substantial investments in natural gas and oil.
In New York, coal investments accounted for only $33 million of the city’s five pension funds. In 2015, CalPERS had only $83 million invested in thermal coal companies, and CalSTRS had $40 million worth of holdings.
Arguments against California’s investments in fossil fuels like oil and natural gas presaged the divestment discussion at the state and city level in New York: that pensions are underfunded, and taxpayer dollars are offsetting the problem at the expense of other public sector investments.
CalPERS had $11.9 billion invested in fossil fuel companies as of 2015.
The California proposal to divest from other fossil fuels drew such an outcry from union leaders that a source familiar with de Leon’s efforts told POLITICO he isn’t planning to take the issue up again.
“The fact is when you look at the green energy companies, they are not as profitable as the fossil fuel companies,” said Steve Crouch, the director of public employees for Local 39, a California labor union. “Now is not the time to be compounding your underfunded problem. Now is definitely not the time to do it.”
Last year, California Assemblyman Ash Kalra, a San Jose Democrat, mounted a more targeted — and theoretically more practicable — effort, proposing a bill that would have compelled CalPERS to divest from companies that do business with the Dakota Access pipeline, the natural gas line that gained media attention thanks to protests from the Standing Rock Sioux Tribe. That bill didn’t go far either. Ultimately, the state Legislature approved a bill that merely required the disclosure of pipeline-related investments, but it did not force divestment itself.
Efforts in Albany to force New York divestment on a statewide level have hit similar hurdles.
In December, Gov. Andrew Cuomo pushed for DiNapoli to drop fossil fuel holdings from the state’s $200 billion pension fund. Like in New York City and California, the state’s public union leaders recoiled. In Albany, they argued that DiNapoli would be breaching his fiduciary duties if he were to move forward with the plan.
“The net effect of this either means a loss of health and safety or wages in the future or a hit to the public perception to their effectiveness,” said Dan Levler, president of the Suffolk County Association of Municipal Employees.
At a February New York State Public Employee Conference in Albany, some union leaders urged caution in light of what happened to the CalPERS when it divested from tobacco, which reportedly cost the state $2 billion to $3 billion.
Not to be deterred, New York state Sen. Liz Krueger has introduced a bill, NY S4596 (17R), that would require DiNapoli to divest from the 200 largest publicly traded fossil fuel companies by 2022, unless he showed “clear and convincing” evidence that doing so would pose a significant risk to the funds.
“[DiNapoli] believes a model where one politician decides universally the pension plans for the state of New York is the right model,” Krueger said in an interview. “I won’t be leading the charge against that model, but I actually do think there is room [for debate] on critically important issues, and I argue the future of the planet falls under the critically important issues category.”
In a statement, Stringer spokesman Tyrone Stevens described the vote to study divestment by boards “comprising more than two-thirds of our assets” as representing a big step forward.
“We’re absolutely committed to this effort,” he said, “because we know that climate change is real — and for the good of our planet and our pension fund beneficiaries, New York City is taking action.”
City Hall spokesman Seth Stein said in a statement that divestment is moving forward.
“With the unanimous BERS vote, in addition to the earlier unanimous NYCERS and TRS votes, divestment is moving forward for the majority of the City’s approximately $190 billion pension funds,” he said. “NYC is moving full speed ahead to getting our dollars out of Big Oil.”
This report first appeared on POLITICO Pro New York on March 7, 2018.