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Legislative Memo

Darren Suarez
Director, Government Affairs
T 518.694.4461
www.bcnys.org

BILL:

S.4596-A (Krueger) / A.3712-A (Ortiz)

Support

SUBJECT:

Retirement Fund Divestment

 

DATE:

May 15, 2018

 

The Business Council opposes this legislation that prohibits 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.  The legislation requires divestment from coal companies must be completed within one year of the effective date and divestment from all other fossil fuel companies must be completed five years of the effective date.  This legislation is financially unwise and environmentally ineffective, in summary this legislation is wrongheaded. 

Research has shown that divestment substantially harms financial performance over the long term.  Pensions systems all over the country have studied the merits of divestment and have rejected the notion, often because it is not financially prudent and did not benefit the environment.

Vermont’s state pension consider it, but after commissioning a financial analysis of what impact divestment would have on the fund, they refused.  Ultimately, their report found it would “increase costs” and “add diversification and technological change risks” to the portfolio.  Most of New York’s most prominent universities have also rejected divestment for the same reasons.

Closer to home, a study from the Suffolk County Association of Municipal Employees showed that the New York State Common Retirement Fund would lose $2.8 billion over 20 years if it were to divest.  The report notes that these losses would “jeopardize” crucial services like healthcare and education and leave taxpayers on the hook to make up the difference.

Meanwhile, a study authored by a conducted by Prof. Daniel Fischel at the University of Chicago Law School, found that if New York City divested it would lose up to $120 million per year and up to a staggering $1.5 trillion over 50 years due to lost diversification benefits. 

The basic premises of divestment is wrong.  It is well understood that as long as there are financial benefits to invest in stocks, investors will seek out those opportunities to invest. Other investors will quickly undo the “good” that divestment is trying to force.

Divestment and boycotts are not the same.  If a people believe that consumer beverage A is harming the world, whereas consumer beverage B isn’t, and accordingly switch their consumption from A to B, the Company A is harmed. Their sales decrease, and they make less profit. By contrast, if the same group of people stop investing in Company A, and invest instead in Company B, things will quickly balance out, and neither company will notice much difference. As soon as a socially motivated investor sells its shares of Company A, a neutral investor will buy it.

Most importantly companies that are invested in fossil fuels are not inherently “bad”.  Fossil fuels have led to an unprecedented increase in industrial development, life expectancy, and quality of life. The fossil fuel industry produces 87 percent of the energy people around the world use to work, feed, clothe, and shelter themselves.

In conclusion it is worth noting that many of the companies that this legislation would target have large research and development budgets committed to alternative energy strategies. The top five energy companies have more than $20 billion committed to alternative and sustainable energy research and development.  Energy companies have a history of providing society the energy it has needed and in the future these targeted companies will provide future generations with the energy they need but that future maybe powered by their current research into alga, batteries, wind, solar, or emissions capture.

Our state and city pensions provide benefits to New York’s many public employees.  They were designed to provide municipal workers and retirees a secure financial future—not to be sacrificed to achieve a headline.