The move to divest funds from fossil fuel interests in resistance to climate change has been slowly building. With New York City joining the effort, there's a new multi-billion-dollar signal.
The divestment movement started on campuses. Now it’s seeping, like black tar from a leaky oil rig, into a city near you.
On Tuesday, New York City announced it would divest pension funds from fossil fuel interests, joining New York State, a cadre of other U.S. cities, and some private universities who say they will pull investments from companies that extract coal, gas, and oil. De Blasio also announced the city’s plans to sue five major oil companies for their role in damages brought on the city by climate disasters.
These are the latest moves in a wave of climate-oriented challenges at the local and state level intended to fill the gaps opened by the Trump administration, which has rolled back federal environmental protections and pulled out of the Paris Climate Accord.
New York City’s pension fund announcement comes just weeks after New York state governor Andrew Cuomo promised that the state pension would also divest, “ceasing all new investments in entities with significant fossil fuel-related activities.”
The money on the table is significant. New York state’s common retirement fund is the third-largest in the nation, worth $200 billion, and provides pensions for more than 1 million New Yorkers. The fund has stakes in 50 oil and gas companies, with $1 billion tied to ExxonMobil alone. New York City’s pension fund, which pays for city employees like police officers, firefighters, and teachers, is also a huge bucket, worth $191 billion. Currently, $5 billion is currently tied up in fossil fuels. (For comparison, San Francisco’s has invested $1 billion; and Seattle’s, $17.6 million.)
When the fossil fuel divestment movement began on college campuses, “the initial impulse was a purely ethical argument,” said Ellen Dorsey, founder of DivestInvest Philanthropy and Executive Director of the Wallace Global Fund. It wasn’t okay, people argued, to be invested in the companies that were driving the climate problem.
This week, Comptroller Scott Stringer explicitly linked the action to the fight to slow climate change, saying the financial future of the city’s employees is inextricably “linked to the sustainability of the planet.”
But it’s become as much an economic strategy as an environmental one. “Quickly, that advocacy opened the black box of the business model of the fossil fuel industry, and drew the attention of investors who said: Wait, there’s a whole financial conversation as well,” Dorsey said. As founder of 350.org Bill McKibben sees it, the future of energy—and, by extension, the financial markets—lies elsewhere.
“I think what we’re really seeing in the pension fund context is a sea change,” said Carroll Muffett, president and CEO of the Center for International Environmental Law. “Where historically very conservative and cautious pension fund fiduciaries and asset managers are slowly recognizing and waking up to the reality that the cautious, conservative thing to do is to reduce exposure to these increasingly toxic assets.” Countries are shifting to renewable energy sources; oil demand is peaking (which implies that soon, it will drop); and fossil fuel stocks aren’t performing as well as they were.
With people’s pensions on the line, financial advisors are saying it might be prudent to pull out now, according to Muffett and Dorsey.
Divestment has been criticized by some as an empty, primarily symbolic move: Each million- or billion-dollar divestiture can have only marginal ripple effects to a $5 trillion dollar fossil fuel industry. Multi-billionaire Bill Gates called divestment a “false solution” in 2015, arguing that pouring funds into renewable energy sources—to ignite innovation in those sectors—would be more effective. Since then, however, he has divested his $187 million stake in BP oil.
And the ripple, however gentle at first, is turning into a tidal wave. According to a report released last December, a group of private investors with stock options topping $5 trillion have joined the movement as well, promising to withdraw some or all of their funds from fossil fuels. Divestment isn’t a catch-all solution to climate change, but if fossil fuel companies are slowly starved of funding, oil, gas, and coal supplies will wane, proponents argue.
New York City is the biggest fish to join the fossil fuel divestment pool at the city level so far, and the money they’re putting on the line is by far the largest sum. “What’s so significant about New York is that, of course, it’s the world’s financial center, sending a powerful message that on ethical, financial and fiduciary grounds it’s necessary to do this,” noted DivestInvest’s Dorsey. “It is important, symbolic, and inspirational potentially: if you can make it in New York, you can make it anywhere.”
Other cities’ divestment initiatives have been years in the making, said Thanu Yakupitiyage, whose organization 350.org has partnered with several cities to lead their efforts.
In 2012, Seattle became the first to divest all of the city’s directly controlled investments from fossil fuels. But while then-Seattle Mayor Ed Murray also asked the city employees’ pension fund to divest its $2.5 billion in assets from fossil fuel-related investments, they ultimately declined to do so in July.
It was Washington, D.C. that became the first and largest U.S. city to fully divest its pension fund, in 2016, and counties and cities in California, Colorado, and Massachusetts have begun to lobby their states to embark on their own pension fund divestment campaigns. U.S. cities like Somerville, Coopertown, San Francisco, and Oakland, and global ones like Capetown, Oslo, Paris, Melbourne, and Berlin have made public commitments to some form of fossil fuel divestment, with varying degrees of success.
De Blasio’s announcement doesn’t mean divestment starts now. The New York City Employees’ Retirement System and Teachers’ Retirement System will begin divesting by 2022, in a method “consistent with prudent practice and in line with their fiduciary responsibilities,” and the other three funds haven’t laid out a concrete timeline. But unlike some other cities’ promises, New York’s is a “very strong one, backed up with an action plan,” said Satya Rhodes-Conway, Managing Director of the Mayors Innovation Project. And as a large city, it is better equipped to follow through.
“A distinction that’s useful is that there are a number of cities for whom there isn’t an action to take,” said Rhodes-Conway. “In smaller cities, it’s rarer that they would be directly invested in stocks or even municipal funds—they might not have any holdings in the fossil fuel industry.” Sometimes, city pension funds are controlled by separate boards; or they are invested in state-level pension funds kept separate from city holdings. Many of the places that have made these verbal commitments to full pension divestment—like Madison, Wisconsin—have nothing left to do but lobby their state legislators.
Other large cities that can act but haven’t yet might be emboldened by New York’s announcement. San Francisco is having a pension board vote on January 24, which would provide an opportunity for divestment (and further investment in renewable resources). Tom Steyer, climate activist and billionaire, wrote an op-ed in the San Francisco Chronicle this summer urging lawmakers to do just that. “The pension board is under pressure from the fossil fuel lobby to stick with their polluting products, but board members should heed reality,” he wrote. “Divestment is the only fiscally responsible decision.” The pension board did not heed his advice in August. But the “decision from New York City will likely greatly influence” this month’s vote, said 350.org’s Yakupitiyage.
“I think what’s happened in NYC is a model for the rest of the country and activists in other parts of the country who have tried and failed and maybe will try again,” she said. “Elected officials will be taking note. They can’t make excuses anymore.”
Precedent for divestment
Divestiture of city pension funds has been attempted before, most famously during the anti-apartheid movement in the ‘80s—a contentious debate that pitted the South Africa-sympathetic Reagan administration against progressive cities, much like the fossil fuel divestment movement pits a combative, pro-business Trump administration against a group of environmentally conscious ones.
In 1986, Baltimore city council members passed an ordinance that would divest city resources from companies with ties to South African business. This put “pension funds squarely in a political battle with the White House over ending apartheid,” wrote CityLab’s Brentin Mock. Baltimore’s ordinance was swiftly challenged by the U.S. Department of Justice which argued that the ordinance violated the constitution’s interstate commerce clause—but Baltimore was ultimately successful after a Maryland court ruled that “profound local concerns” regarding apartheid’s racial discrimination rendered that argument moot.
Among other political acts, divestment efforts and U.S. sanctions were said to have moved the needle—if not financially, at least in the realm of public opinion. Apartheid was abolished in South Africa by the ‘90s, and Nelson Mandela was elected the first black president in 1994.
The teeth of a lawsuit
New York City’s divestment announcement has perhaps stronger teeth than others that have preceded it, because it comes paired with an intention to launch lawsuits against ExxonMobil, Chevron, BP, Shell, and ConocoPhillips. “It’s up to the fossil fuel companies whose greed put us in this position to shoulder the cost of making New York safer and more resilient,” said de Blasio in a statement.
“Either one of these announcements individually would have been huge,” said CIEL’s Muffett. “But the fact that they come together is in fact even more important because these risks—the risk of long term divestment and the risks of mounting litigation—are fundamentally interwoven.”
One of the reasons pension fund fiduciaries are wary of divestment is that they think they must be singularly focused on the economic impact of their actions, and avoid taking into account the sociocultural ones. “That’s an ethos that’s changing,” said Muffett.
“We are asking pension fund fiduciaries to consider not some abstract social risk but in fact very significant financial risks and financial uncertainties that come from the risks of stranded assets in a transitioning economy—and the risks of climate-related litigation,” he said. “The fact of New York’s litigation itself demonstrates that this litigation risk exists and is significant.”
In suing fossil fuel corporations, New York City is creating a financial uncertainty that could eventually impact its own pension fund. Why would it keep $5 billion tied up in a company that’s being litigated by one of the most financially powerful cities in the U.S.: itself?
New York has become the eighth city to sue the fossil fuel industry, joining California’s San Francisco, Oakland, Marin, Imperial Beach, San Mateo, and the city and county of Santa Cruz.
The claims New York City will levy are private nuisance, public nuisance, and trespass at the hands of these companies: sea levels are rising, temperatures are climbing, and extreme rainfall events (like Superstorm Sandy) have increased seventyfold. But once a city has identified defendants, and can make a causal connection between those defendants and the climate-related harms they’ve incurred, said Muffett, there is an almost endless array of potential legal theories cities can use.
Santa Cruz sued over wildfire impacts, for example, and the coastal cities of San Fransisco and Oakland have asked companies to abate nuisances caused by sea level rise. As the severity of climate change worsens, the diversity of impacts will multiply, as will the cities affected. More could start to sue, for more reasons.
For New York, Hurricane Sandy served as a dramatic hook to prove to residents that climate change is real, it’s dangerous, and it’s financially ruinous. The city is still rebuilding. “When Sandy came, I lost everything, so I am so proud that my City will stop financing climate destruction by divesting from oil and gas corporations like Exxon,” said Michael Johnson, a member of New York Communities for Change, in a statement released by the city. But Yakupitiyage says there shouldn’t have to be a disaster close to home for cities to act.
“Hurricane Sandy definitely helped to push New York to do this, but more and more the reality is that climate impacts are happening everywhere,” she said. “The reality is that it’s going to continue to happen in 2018.”
“It’s not an excuse for cities to say we haven’t been impacted,” said Yakupitiyage, “because it’s only a matter of time.”