May 18, 2016
Note: the Sierra Club Atlantic Chapter strongly supports enactment of this Act that would require the NYS Comptroller to divest the State 's Common Retirement Fund from its holdings of the top 200 publicly traded fossil fuel companies.
by Lisa DiCaprio
This article is based on testimony that I presented in support of the NYS Fossil Fuel Divestment Act on behalf of the Atlantic Chapter at a forum on this legislation, which was held in Albany on February 29, 2016.
State Senator Liz Krueger and Assembly Assistant Speaker Felix W. Ortiz, the legislation’s sponsors, organized the forum which included State Senator Brad Hoylman, representatives from environmental organizations, professional associations, and the American Petroleum Institute; and financial analysts.
Two years ago, our chapter adopted a resolution calling for divestment of fossil fuels from the NYS Retirement Fund and the NYS Teachers’ Retirement System. We now support the Fossil Fuel Divestment Act which requires the New York State Comptroller to divest the NYS Common Retirement Fund, currently worth about $180 billion, from its holdings in the top 200 publicly traded fossil fuel companies, which are listed in the Carbon Underground 200 based on the carbon content of their proven coal, oil and gas reserves. Divestment from coal companies must be completed within one year and from all other fossil fuel companies by January 1, 2020.
The Fossil Fuel Divestment Act has 11 sponsors in the State Senate and 10 sponsors in the State Assembly. To increase the number of sponsors, we can call and write to our representatives in the NYS Senate and Assembly and ask them to co-sponsor S5873–2015 and A8011A–2015. For a list of NYS legislators, see: http://assembly.state.ny.us/mem and http://www.nysenate.gov/find-my-senator
As of September 2015, 500 institutions and individuals globally have pledged to divest fossil fuels from assets worth a total of $3.4 trillion. Fossil fuel divestment is part of a global campaign to keep fossil fuels in the ground and encourage the transition to a new, green economy.
Today, climate change is the greatest threat to basic human rights — the right to water, food, health, housing and human dignity. The National Climate Assessment report issued in 2014 concluded that climate change now adversely affects all regions of the U.S. and all sectors of our economy: agriculture, manufacturing, transportation, infrastructure, etc.
In 2011, the Carbon Tracker Initiative developed data showing that we must keep two-thirds of fossil fuel reserves in the ground to remain below an increase of 2 degrees Celsius (3.6 degrees Fahrenheit) of average global temperature since the Industrial Revolution. The Atlantic Chapter has advocated to prevent any increase higher than 1.5 degrees Celsius, the aspirational goal of the December 2015 Paris Agreement.
Based on this scientific concept of unburnable carbon, the Carbon Tracker Initiative developed the financial concept of stranded assets, or reserves that cannot be extracted. The worth of fossil fuel companies is directly related to the extent of their reserves, which comprise the assets of these companies. Coal, oil and gas companies are vastly overvalued because various long-term factors limiting carbon emissions will result in stranded assets. This will lead to a massive devaluation of fossil fuel stocks, which is distinct from the cyclical volatility in fossil fuel prices.
We are already seeing this devaluation, especially with coal stocks. The risk to all fossil fuel investments will only increase with the implementation of current and future carbon constraints, such as the new EPA carbon rules; federal, state and municipal goals for the reduction of greenhouse gas emissions; technical innovations in renewable energy and battery storage; the use of alternative fuels for transportation; financial incentives, including the recent five-year extension of federal tax credits for solar and wind power; and the recently concluded Paris Agreement.
Each of these initiatives represents a puncture in the carbon bubble — the inflated value of fossil fuel companies.
The Sierra Club, and corporate and financial analysts, predict that the pledges made by 187 countries for the reduction in greenhouse gas (GHG) emissions at the COP21 Paris Climate Summit meeting will transform energy markets from fossil fuels to renewable energy.
By all accounts, these pledges are not sufficient to keep average global warming below 2 degrees Celsius and certainly not below 1.5 degrees Celsius (2.7 degrees Fahrenheit), which is a more accurate, upper threshold. However, the Paris Agreement is the first time that developed and developing countries have committed to reducing their emissions and the five-year annual review process will allow for more ambitious pledges to be made in the near future on a regular basis.
Fulfilling these pledges will require increasing energy conservation and efficiency, and expanding renewable energy — all of which will displace fossil fuels worldwide, strand fossil fuel assets and devalue fossil fuel investment. The aspirational goal of a 1.5-degree Celsius limit will keep even more fossil fuel reserves in the ground.
For example, the COP 21 meeting in Paris also featured the launch of the International Solar Alliance by France and India, which will include 120 governments and the Global Solar Council, comprising over 1,000 companies.
Clifford Krauss and Keith Bradsher wrote an article, “Climate Deal is Signal to Industry: The Era of Carbon Reduction is Here,” which appeared in the December 14, 2015, New York Times. It said, “If nothing else, analysts and experts say, the accord is a signal to businesses and investors that the era of carbon reduction has arrived. It will spur banks and investment funds to shift their loan and stock portfolios from coal and oil to the growing industries of renewable energy, like wind and solar.”
Similarly, Jennifer Morgan, of the World Resources Institute, stated that the Paris Agreement sent “a long-term signal about the inevitable shift to a zero-carbon economy.”
As reported in a December 12 Guardian article, “Paris Climate Agreement ‘may signal end of fossil fuel era,’ ” Paul Polman, chief executive of Unilever, stated: “The consequences of this agreement go far beyond the actions of governments. They will be felt in banks, stock exchanges, boardrooms and research centres as the world absorbs the fact that it is embarking on an unprecedented project to decarbonise the global economy.” Unilever is a member of the Renewable Energy 100, an alliance of 53 diverse companies that have committed to obtaining all of the energy required for their daily operations from renewable sources.
Institutional investors also view the Paris Agreement as a turning point, as related in the article, “Pension funds welcome ‘momentous’ Paris climate agreement,” which appeared in the December 15 edition of the publication, Investment & Pensions Europe. According to this article, “Investors said the agreement . . . showed ‘great potential’ and would accelerate the global transition away from fossil fuels to a low-carbon economy.” The article quotes Stephanie Pfiefer, the chief executive of the Institutional Investors Group on Climate Change (ILGCC), as stating that “the agreement was an unequivocal signal to investors that an escalation of financing for low-carbon infrastructure was needed to deliver the targeted reduction in carbon emissions.” The ILGCC is “a network of 120 members, including some of the largest pension funds and asset managers in Europe.”
Investors worldwide must choose which side they’re on. According to a 2012 International Energy Agency (IEA) report, a trillion dollars must be invested annually and globally in green infrastructure and technologies. Currently, these investments total $300 billion annually. Institutional investors, such as the NYC and NYS pension funds, can and must play a crucial role in meeting this goal by divesting from fossil fuels and reinvesting, in whole or in part, in green infrastructure and renewable forms of energy.
We call on the New York State Legislature to support the Fossil Fuel Divestment Act as an ethical and financial imperative. If there is a long-term future for fossil fuel investments, there is no future for a habitable planet.