July 31, 2014

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A $147 Billion Opportunity: Fossil Fuel Divestment Movement Sets Sights on NYC Pension Funds

Fossil fuel divestment activists are taking aim at New York City's giant pension fund system in a bid to get the city to strip dirty energy investments from its $147 billion portfolio.

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By Francesca Rheannon

Fossil-Free NYC

On February 26th, a forum on “Fossil-Free NYC,” co-sponsored by the Responsible Endowments Alliance, GreenFaith and the NYC Grassroots Alliance, kicked off a campaign to get the city’s five municipal pension funds to divest any holdings in the top 200 publicly-held companies that own most of the fossil fuel reserves still in the ground.

Included in the top 10 are ExxonMobil, BP, Gazprom, Chevron and Royal Dutch Shell. Number one on the list is Russian company Severstal, with ownership of some 141 gigatons of CO2 (GtCO2) in the form of coal reserves.

Unburnable Assets Will Be Stranded Assets

According to Carbon Tracker, the world must not burn more than about 565 GtCO2 from 2010 until 2050 if we are to keep within the limit of a 2°C of global temperatureFossil-Free rise necessary to prevent catastrophic and irreversible climate change. Known fossil fuel reserves held by the 200 companies total 745 gigatons. That means about 180 GtCO2 could be considered “unburnable,” the Carbon Tracker report, Unburnable Carbon, states.

These will likely become stranded assets as the consequences of climate change translate into government policy and corporate planning to restrict use of fossil fuels. As Linnea Paton, state campaign coordinator for Students for a Just and Stable Future, noted at the forum, “any company based on burning fossil fuels is overvalued.”

De Blasio Administration Indicates Continuing Commitment to Climate Action

There are indications that the de Blasio administration intends to continue the previous administration’s commitment to tackle climate change. The newly elected New York City comptroller, Scott Stringer, spoke at the recent 2014 Investor Summit on Climate Risk at the U.N. about creating a carbon market in New York, much as California has done.

He also mentioned that climate change poses a substantial risk to the financial stability of the city’s pension funds, saying, “as fiduciaries, we have no choice but to act” to reduce climate risk. While Stringer has still not committed to supporting divestment of fossil fuel assets in those funds, divestment activists hope his remarks at the U.N. signal receptivity to their aims in the new administration.

Non-Binding City Council Resolution a First Step

They intend the push the point with a non-binding resolution by the City Council as a first step.

In a draft version of the resolution unveiled at the forum, they ask the city to divest in light of specific concerns New York City has already shown, including the development of the city’s PlaNYC, last updated in 2011, which sets a city-wide goal of reducing carbon dioxide emissions by 80 percent by 2050 and a 2010 finding by the Bloomberg administration that New York City “is already experiencing a number of climate risks as a result of global warming, including heat waves, sea level rise and storm surge, and droughts and floods.”

Divestment advocates have some friends already on the City Council: the Progressive Caucus included divestment as one of “13 Bold Ideas for NYC” and divest-fossil-fuelseveral City Councilors have already declared support for the idea.

Impact of Divestment by NYC Pension Funds

Were New York City to divest its four pension funds of fossil fuel holdings, it would be a major turning point for the divestment movement. For one, it would be by far the largest municipal pension system to divest; the largest so far to pass such a vote is San Francisco, with $16 billion in assets to New York City’s $147 billion.

Nathan Schumer, 350NYC's City Council Liaison, told forum attendees that, were the city to vote to divest its pension funds of fossil fuel holdings, it would “make it much more difficult to fund fossil fuel projects both worldwide and in the U.S.” Presumably, the position of New York City as a global financial center would send a robust message to investors.

Some energy industry analysts warn that high profits in the “extreme energy” sectors (deep water oil, tar sands, shale oil, and gas hydro-fracking) are illusory and likely to be short-lived. Richard Heinberg of the Post Carbon Institute examined records of the hydrofracking oil and gas industry and concluded that there is an unsustainable bubble in drilling that will crash by 2020. (You can hear my interview with him here.) The divestment movement hopes to help prick that bubble by making borrowing money for extreme energy projects more expensive.

But it’s unclear whether divestment will directly impact the bottom line of fossil fuel companies—in the short term. Rather, the movement’s most realistic aim is to make the fossil fuel companies pariahs like the tobacco companies.

Pairing Divestment with Investment in Renewables

One issue confronting the movement is the limited power of a purely negative message. At the Fossil Free NYC forum, NYU sustainability professor Lisa di Caprio argued persuasively for matching divestment with “re-investment” in renewables and energy efficiency.

She said divestment advocates need to stress to institutional investors that fossil fuels are the investments of the past, while clean energy and other investments that decrease climate risk are the “investments of the future.” Di Caprio cited figures showing that socially responsible investments tend to have a 25 percent higher stock value than less sustainable investments.

The Clean Trillion

There is a growing universe of clean investments available to pension funds that wish to divest – and strengthen the long-term stability of solar panelstheir portfolios.

And such investment is sorely needed.

The IEA has estimated that the world needs to invest $1 trillion per year over the next 36 years to replace fossil fuels and avoid exceeding 2°C of warming – a four-fold increase over current investment levels. CERES recently published a report, Investing in the Clean Trillion, with 10 recommendations for investors, companies and policy-makers to help this vision become a reality.

Some in the divestment movement are already matching their demands for getting out of fossil fuels with encouragement for investors to get into clean energy investments. Should this trend grow, it could provide a tasty carrot to institutional investors to do the right thing, along with the stick of climate change risk driving them to divest.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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