NYC Retirement System Plans ‘Most Comprehensive’ Divestment Study on Fossil Fuels

While grappling with a plan to divest from fossil fuels within five years, the $193 billion New York City Retirement System is about to embark on what its CIO  calls “the most comprehensive” fossil fuel study ever done by a public pension plan,  on whether divesting from fossil fuel stocks is economically feasible from an investment returns viewpoint.  

Scott Evans, New York City deputy comptroller for asset management and chief investment officer the New York City Retirement System, told a panel at the Penson Bridge Conference in San Francisco Wednesday that the verdict is still out as to whether divesting would be fiscally responsible.

The pension system is one of the largest in the U.S. and is also structurally complex because it is made up of five different pension plans, each with its own board. Back in January, New York City Mayor Bill de Blasio and Comptroller Scott M. Stringer announced a joint plan for the $193 billion New York City Retirement System to divest of its $5 billion in fossil fuel investments within five years.

Evans said divesting from oil and gas companies would create  significant tracking error, unlike decisions by three of the system’s five boards to divest of gun manufacturers and private prison companies. Those divestments resulted in little or no tracking error from the system’s equity index portfolios, Evans said.

“Since a divestment from oil and gas would introduce material levels of additional risk into our portfolios, we’re going to be conducting a comprehensive study, evaluating the pros and cons of this and trying to achieve  something that balances the values of the systems we serve with the fiduciary obligation we all have under the law to serve the economic interest of all fund beneficiaries.”

Evans told CIO after the panel that the New York City Retirement system is committed to a comprehensive study of fossil fuel divestment that goes well beyond the current public plan dialog on whether divesting from fossil fuel stocks is economically feasible from an investment returns viewpoint.

He said the first step would the issuance of a request for information in which multiple groups, including academics and members of the public, would  be allowed to submit information and views on the topic of fossil fuel divestment. Evans would not offer a timetable for the RFI but sources said that should occur with in the next few months.

After the RFI is done, Evans said consultants would be hired to conduct an in-depth analysis of  the investment implications of managing a portfolio without any oil and gas stocks.   

Already, three of the five pension systems boards comprising more than two-thirds of the $193 billion portfolio – or 70% of all assets – have voted to study divestment from fossil fuel reserves. Evans said just two of the boards, the $40 billion New York City Police Pension Fund and the $13. 5 billion New York City Fire Department Pension Plan have not been supportive of studying fossil fuel divestment thus far.

Evans noted that two of the Systems, Police and Firs had been less likely to adopt divestment resolutions with previous issues such as gun manufacturering.

No major pension plan in the U.S. has divested of oil and gas company stocks though some plans have divested of a smaller sub-section of energy companies, specifically thermal coal companies.

Investment officials of retirement plans like the California Public Employees’ Retirement System, the largest in the U.S, say they aim to have a seat at the table by engaging management of major oil and gas companies, rather than divesting.