Third-Largest Pension Fund in the U.S. Purges its Portfolio of Fossil Fuel Companies

New York City (“NYC”) announced, the week of January 25th, 2021, three of its five public employee pension funds will pull out a collective $4 billion previously invested in fossil fuel companies. (Alex Wittenberg, Bloomberg). According to city officials, this divestment from fossil fuels is not only one of the first in our nation but is expected to be one of the largest environmentally conscious divestment efforts in the world. (Rachel Koning Beals, MarketWatch). The million-dollar question, or better yet, the $4 billion question is: Is it acceptable for custodians of these massive funds to risk losing profits for the beneficiaries of the fund over a moral disagreement with the investment?

Before we dive in, let’s review what divestment means. Divestment means selling or trading bonds, investment funds, or stock; it is the opposite of an investment. (Robinhood). Fossil Fuel divestments are typically socially-driven withdrawals of principal by private and public investors in response to moral or financial interests. Id.

NYC Mayor Bill de Blasio and City Comptroller Scott Stringer announced two pension fund boards have already voted and approved the divestment from fossil fuels. (The Associated Press, The Seattle Times). One is the NYC Employees’ Retirement System, valued at $91.4 billion. The other is the NYC Teachers’ Retirement System, valued at $77.4 billion. Id. There is not a set date; however, the NYC Board of Education Retirement System will vote imminently on a proposed divestment. Id.

Significant financial damage in the fossil fuel industry is caused by divestments. (Bill McKibben, The Guardian). In 2016, the world’s largest private-sector coal company in the world, Peabody, revealed bankruptcy plans. Id. Included among Peabody’s list of reasons for filing bankruptcy was the divestment drive, which hindered its ability to raise capital. Id. As a stand-alone movement, divestment is not going to fix the climate fight; however, it may weaken the fossil fuel profiteers contributing to it.

Bill McKibben, a co-founder of the 501(c)(3) non-profit environmental organization 350.org, stated that NYC “set a new bar for climate finance action.” (Louise Boyle, Independent). McKibben elaborates by stating, “taking billions out of the companies that own and profit off of fossil fuels, [NYC] is playing an enormous role in moving the financial industry towards a greener future.” Id. Similarly, NYC’s City Comptroller, Stringer, stated in an interview, “smart investment policy and smart climate solutions go hand in hand. We are putting our money where our mouth is.” (The Associated Press, The Seattle Times). DivestInvest, a company endorsing and tracking the divestment movement, published data in June 2020 recording 1,246 institutions and 58,000 people have committed to divesting their investments in fossil fuels. (DivestInvest).

Investment companies and various institutions are coming under mounting pressure to tackle climate change. (Alex Wittenberg, Bloomberg). Should these institutions make financial decisions based on morals? According to scientists, fossil fuels have alone prematurely killed more than 8 million people through particle pollution. (Eric Roston, Bloomberg). The real moral dilemma these institutions should consider is: How many lost lives make it worth the profit received from the fossil fuel industry? The fossil fuel industry continues to profit from the consumption of oil, gas, and coal, in turn driving global warming to dangerous levels. Id.

Although the reasons previously stated are not an exhaustive list of fossil fuel effects, they represent a few of the reasons various institutions have taken actions to decrease their carbon footprints. (David Carlin, Forbes). Fossil fuel divestments may help to stigmatize the industry to reduce the financial attraction of fossil fuel companies. Id. New York’s leading edge has created a domino effect of major investors, pension plans, and institutions using economic clout to tackle the risk of climate change. Id.

Those opposed to divestments have argued there is a breach of fiduciary duty and claim institutions and investors must put the financial needs of their beneficiaries ahead of moral disagreements regarding the environment. (Carolyn Fortuna, CleanTechnia). However, climate advocates have made counterarguments against the idea that fossil fuel divestments will benefit their beneficiaries. Id. Climate advocates argue there is likely to be a drop in demand for fossil fuels as the world shifts to renewable energy. Id. With the shift to renewable energy, investors should consider the financial risks and stop investing money into fossil fuels. Id. Challenges of climate change can trigger fiduciary duties to monitor to ensure the interest of beneficiaries are met. Id. In conclusion, to answer the earlier $4 billion question presented, the verdict is in and it is acceptable for custodians of these massive funds to risk losing profit over moral disagreements, as long as the losses are for a greater cause.