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IEEFA Op-Ed: Cuomo Is Right on Fossil Fuel Divestment

January 04, 2018
Tom Sanzillo

Gov. Andrew Cuomo has taken a big, bold step in the fight against global warming, calling for the state pension fund to divest from oil and gas stocks. It’s also a fiscally prudent step, protecting both the state pension fund and the state budget. Retirees needing financial security, young people facing a chaotic climate, and taxpayers all owe him a big thanks.

For decades — including the early 2000’s when I helped oversee the state retirement fund — oil and gas stocks led the market. But times have changed. Oil stock performance has been slipping.

Thanks to Cuomo’s action, there’s finally a real possibility of getting the pension fund’s sole trustee, Comptroller Tom DiNapoli, to listen to the facts he has been ignoring:

Energy stocks were among the worst performing sectors in 2017, even as the overall stock market made big gains, as documented just last week by both the Wall Street Journal and New York Times.

Unlike in the past, the sharp increase in oil prices did not help energy stock prices.

The state pension fund’s own standard shows it would have performed better without energy stocks. The fund invests based on a collection of stocks chosen to reflect the broad stock market, known as the MSCI All Country Index, which includes energy stocks. But remove fossil fuel stocks from that index and its returns for the past 1, 3, and 5 years would have improved.

THE FUTURE WILL BE MORE OF THE SAME. As the price of solar panels plummets and electric cars become more realistic, it’s clear the energy equation has shifted and a massive transition is underway. DiNapoli, to his credit, is moving investments into these growing markets, but has yet to divest from the oil and gas sectors.

The smart money is headed away from fossil fuels. Norway’s Government Pension Fund Global, which is five times larger than New York’s fund, is planning to divest its indexes from oil and gas stocks, as they are increasingly speculative and less profitable. That’s especially significant because Norway made its fortune on North Sea oil; it knows better than most that a new economy is coming.

The World Bank recently announced it is ending its lending to fossil fuel projects. Even some of the heirs to the original oil fortune of John D. Rockefeller —the Rockefeller Brothers Fund and the Rockefeller Family Fund — along with a growing list of philanthropic investors, have announced they are divesting from fossil fuels, citing both moral and financial grounds.

DiNapoli’s contribution to preventing climate change, by contrast, has so far been slim. He’s helped persuade a couple of oil companies to undertake nebulous “climate disclosure” policies that may shift their direction over the course of decades. That’s not nothing, but it’s not much—and in fact, the oil and gas industry has adopted the comptroller as the poster child for responsible climate action. His actions don’t match the urgency of the climate crisis or the new financial reality of energy stocks.

Oil and gas companies have misled the public and investors about climate change for decades. They put their weight behind politicians that block real action. Anyone with doubts about their utter lack of responsibility should look at the documents uncovered by Attorney General Eric Schneiderman in his ongoing investigation of ExxonMobil.

Historically, when governors got involved with the pension fund, it was to irresponsibly try to shortchange the fund to solve budget problems. Comptrollers have successfully stopped those efforts. Cuomo is doing the opposite here, questioning an investment decision that threatens the fund’s financial position. He, too, has an obligation to protect the fund.

In my view, the governor has stepped into the comptroller’s shoes because the comptroller has walked away from his fiduciary obligation with regard to fossil fuels. If DiNapoli heeds this call for action, there is still time for the New York governor, comptroller and state attorney general to lead the nation.

Tom Sanzillo is the director of finance for the Institute of Energy Economics and Financial Analysis. He served in senior management in the New York City and state comptrollers’ offices from 1990-2007, including four years as state first deputy comptroller.

This commentary first appeared in the Albany Times Union.


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Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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