The Business Council of New York State strongly opposes this legislation which mandates that the State Comptroller divest the New York State Common Retirement Fund (CRF) from companies engaged in the production of fossil fuels.
The State should not mandate divestment, because it’s not an effective means of addressing climate change, but would limit returns to the CRF, and could potentially lead to higher taxes.
Not a Climate Solution
Many climate experts see the divestment movement as a public relations measure rather than an effective tool to addressing climate change.
First and foremost, the divestment campaign is not happening in a vacuum. If the CRF divests and share prices go down, other investors will see value in the market and purchase those stocks.
Furthermore the CRF’s current investment in company provides the CRF with partial ownership in the corporation and a small portion of its future profit stream. But the return on the stock investment does not go into the funds of the corporation itself to be used to invest in new oil and gas resources. The corporation sees no inflow of additional funds after a divestiture. It only sees a change in its ownership; its obligation to remit future profits simply changes hands.
Simple economics dictate companies will still make investment decisions based on the fundamental economics of oil and gas production, rather than who owns the company’s shares.
Bill Gates has had this to say about the connection between divestment and climate “I don’t see a direct path between divesting and solving climate change. But that energy of caring, I think you need to direct it towards something that solves the problem.”
MIT Director of Earth Resources Laboratory Brad Hager has expressed similar sentiments when he said “We need to apply some discrimination, and that’s what’s wrong with this divestment movement, it throws everything out rather than making thoughtful choices about what is good and what we should keep, and what we should get rid of.”
Limits Investment Options for the CRF
There is general agreement that divestment almost always generates long-term shortfalls for institutional investments due to reduced diversification. The loss associated with divestment can be substantial, given the size and importance of the energy sector being divested.
Reduced CRF will Increase Taxes
Reductions in the CRF’s returns could reduce funds to covers public-pension benefits, which are guaranteed by the state Constitution. Shortfalls in the CRF require that the government contribute taxpayer money to cover payments.
In summary, this bill does not represent a climate solution, but will result in less diversity in the CRF, and a potential tax increase. For these reasons, The Business Council strongly opposes this legislation.