NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A8011A
SPONSOR: Ortiz TITLE OF BILL: An act to amend the retirement and social security
law, in relation to limitations on investments of public pension funds
PURPOSE:
To direct the State Comptroller to divest the New York State Common
Retirement Fund from companies engaged in the production of fossil
fuels.
SUMMARY OF PROVISIONS:
Section 1: The act is named the "fossil fuel divestment act."
Section 2: Amends the Retirement and Social Security Law to prohibit the
State Comptroller from investing monies of the Common Retirement Fund in
of the top 200 companies that hold the largest carbon content fossil
fuel reserves. Divestment from coal companies must be completed within
one year; divestment from all other fossil fuel companies must be
completed by January 1, 2020.
The bill permits the Comptroller to cease divestment or reinvest in
previously divested companies if he/she can demonstrate that as a direct
result of such divestment the Fund has become or shall become: (i)
equal to or less than 99.5 per cent; or (ii) 100 per cent less 50 basis
points of the hypothetical value of all assets under management by, or
on behalf of, the Fund assuming no divestment from any company had
occurred.
The bill requires the Comptroller to identify all companies subject to
divestment in which the Fund has holdings, and to report annually on the
progress of divestment.
JUSTIFICATION:
Climate change is a real and serious threat to the health, welfare and
prosperity of all New Yorkers. Maintaining the status quo of fossil fuel
energy production will unquestionably lead to a self-created catastro-
phe. Therefore the State of New York has a responsibility to take steps
to avert this disastrous result. Divesting the New York State Common
Retirement Fund from all investments in fossil fuels, as mandated by
this legislation, is far from a silver bullet, but it is one important
step among many necessary to move our climate away from the precipice.
The consensus of the international scientific community is that climate
change will lead to rising sea levels, increasingly intense storm events
and droughts, as well as threats to global water and food supplies and
loss of critical biodiversity, threatening lives, livelihoods and the
integrity of our society. Among the risks New York faces are:
*Harm to human health and safety; *Increasing healthcare costs;
*Increasing costs to municipalities and local governments; *Higher
insurance costs; *Loss of property value; *Contamination of water and
soil; *Deforestation; *Loss of wetlands; *Losses to agriculture, fisher-
ies, and tourism; and *Destruction of homes and displacement of families
and communities.
The 2009 Copenhagen Accords stated that an increase in global average
temperature of more than 21 C would lead to an unsafe risk of irrevers-
ible climate change. In order to stay below 21 C, there is a limit to
the amount of carbon dioxide emissions that can be released globally
through the burning of fossil fuels - 886 Gigatons between the years
2000 and 2050. 321 Gt have been burned from 2000 to 2010, leaving a
remaining carbon budget of approximately 565 Gt. Currently proven fossil
fuel reserves belonging to private and public companies total an over-
whelming 2,795 Gt of potential emissions, not including as-yet undiscov-
ered reserves that fossil fuel companies spend billions of dollars each
year to find. This means that in order to avoid causing catastrophic
climate change, at least 80% of all current proven coal reserves, half
of gas reserves and one third of oil reserves must stay in the ground.
The State Common Retirement Fund, with an estimated value of over $180
billion, invests at least $5.12 billion in public pension money in
companies that mine, drill and produce fossil fuels. The CRF is one of
the largest and most visible institutional investors in the world. By
divesting from fossil fuels, the CRF will send a message that it is
unacceptable for any institution to profit from activities that threaten
the future of our society, and will begin the process of delegitimizing
a business model that, while financially profitable in the short run, is
socially and morally bankrupt. As a state we cannot commit to the steps
necessary to prevent climate change while maintaining a financial inter-
est in companies whose profits depend on the continuation of practices
that cause climate change. As Upton Sinclair wrote, "it is difficult to
get a man to understand something when his salary depends on his not
understanding it."
The Office of the State Comptroller has made a significant effort to use
stockholder engagement to influence the actions of climate-damaging
fossil fuel companies. However, these companies have largely ignored
entreaties from OSC and other institutional investors, played down the
threat posed by climate change, and scoffed at the possibility of chang-
ing their way of doing business. In the end, the profitability of
fossil fuel companies is based solely on their ability to supply far
more carbon than the atmosphere can safely absorb, a business plan that
is at odds with physical reality, making stockholder engagement a futile
endeavor and demonstrating the necessity of divestment.
Divestment is wholly in accord with the state's fiduciary responsibility
to protect the value of the pension fund. Numerous business, financial
and government leaders worldwide have warned that investing in fossil
fuel companies undermines the soundness of investment portfolios,
including the governor of the Bank of England, Mark Carney; the Presi-
dent of the World Bank, Jim Yong Kim; and former Treasury Secretary
Henry Paulson. Given the growing understanding of the reality of climate
change and the increasing likelihood of national and international
action to reduce fossil fuel use, companies whose value is based on
unburnable carbon reserves risk rapid devaluation as a result of these
stranded assets. A prudent fiduciary must also take into account the
broader risk of economic and market disruption posed by climate change,
the evidence of which has already been seen in the aftermath of Super-
storm Sandy and other extreme weather events. To further address
concerns about meeting fiduciary obligations, this bill contains a
financial safety valve that would permit the Comptroller to cease and/or
reverse divestment if he or she can demonstrate significant loss of
value to the CRF as a direct result of divestment.
This bill provides a five-year horizon for completion of divestment from
all fossil fuels (including coal, oil, and natural gas) in order to
maximize flexibility and minimize financial risk. However, divestment
from the coal industry in particular is an urgent financial and environ-
mental necessity, and it is therefore specially mandated to occur within
one year. The CRF has already lost over $100 million through coal
investments in the past three years at a time of generally strong market
growth, and those investments are not likely to recover Coal is one of
the dirtiest, most carbon intensive sources of energy, emitting more
carbon dioxide per unit of energy produced than oil or gas. Recent
analyses have found that over 80% of worldwide coal reserves, including
90% of US reserves, must stay in the ground in order to stay below the
21 C limit.
In taking the responsible step of divesting from fossil fuels, New York
would take a leading role in a global movement that includes more than
160 institutions and local governments, including The New School, and
Stanford and Syracuse Universities; the cities of Seattle, San Francis-
co, Portland, Minneapolis, and Ithaca; the World Council of Churches,
and the United Methodist Church USA; Guardian Media Group and the Rocke-
feller Brothers Fund; and the sovereign wealth fund of Norway. Divest-
ment is financially prudent, morally imperative, responsible policymak-
ing, and the time for action is now.
FISCAL IMPLICATIONS:
Undetermined
EFFECTIVE DATE:
This act shall take effect immediately
STATE OF NEW YORK
________________________________________________________________________
8011--A
2015-2016 Regular Sessions
IN ASSEMBLY
June 4, 2015
___________
Introduced by M. of A. ORTIZ -- read once and referred to the Committee
on Governmental Employees -- committee discharged, bill amended,
ordered reprinted as amended and recommitted to said committee
AN ACT to amend the retirement and social security law, in relation to
limitations on investments of public pension funds
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. This act shall be known and may be cited as the "fossil
2 fuel divestment act".
3 § 2. Section 423 of the retirement and social security law, as amended
4 by chapter 770 of the laws of 1970, is amended to read as follows:
5 § 423. Investments. [a.] 1. On and after April first, nineteen
6 hundred sixty-seven, the comptroller shall invest the available monies
7 of the common retirement fund in any investments and securities author-
8 ized by law for each retirement system and shall hold such investments
9 in his name as trustee of such fund, notwithstanding any other provision
10 of this chapter. Participating interests in such investments shall be
11 credited to each retirement system in the manner and at the time speci-
12 fied in [paragraph] subdivision two of section four hundred twenty-two
13 of this article.
14 [b.] 2. (a) To assist in the management of the monies of the common
15 retirement fund, the comptroller shall appoint an investment advisory
16 committee consisting of not less than seven members who shall serve for
17 his term of office. A vacancy occurring from any cause other than expi-
18 ration of term shall be filled by the comptroller for the remainder of
19 the term. Each member of the committee shall be experienced in the field
20 of investments and shall have served, or shall be serving, as a senior
21 officer or member of the board of an insurance company, banking corpo-
22 ration or other financial or investment organization authorized to do
23 business in the state of New York. The committee shall advise the comp-
24 troller on investment policies relating to the monies of the common
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD11177-02-5
A. 8011--A 2
1 retirement fund and shall review, from time to time, the investment
2 portfolio of the fund and make such recommendations as may be deemed
3 necessary.
4 (b) The comptroller shall appoint a separate mortgage advisory commit-
5 tee, with the advice and consent of the investment advisory committee,
6 to review proposed mortgage and real estate investments by the common
7 retirement fund. In making investments, as authorized by law, the comp-
8 troller shall be guided by policies established by each committee from
9 time to time; and, in the event the mortgage advisory committee disap-
10 proves a proposed mortgage or real estate investment, such shall not be
11 made.
12 (c) No officer or employee of any state department or agency shall be
13 eligible for membership on either committee. Each committee shall
14 convene periodically on call of the comptroller, or on call of the
15 chairman. The members of each committee shall be entitled to reimburse-
16 ment for their actual and necessary expenses but shall receive no
17 compensation for their services.
18 3. (a) Notwithstanding any provision of law to the contrary, the comp-
19 troller shall not have the power to invest the available monies of the
20 common retirement fund in any stocks, debt or other securities of any
21 corporation or company, or any subsidiary, affiliate or parent of any
22 corporation or company, among the two hundred largest publicly traded
23 fossil fuel companies, as established by carbon content in the compa-
24 nies' proven oil, gas and coal reserves. The comptroller shall, in
25 accordance with sound investment criteria and consistent with his or her
26 fiduciary obligations, divest any such stocks or other securities wheth-
27 er they are owned directly or held through separate accounts or any
28 commingled funds. Divestment pursuant to this subdivision must be
29 completed by January first, two thousand twenty, with the exception of
30 companies engaged in the mining, extraction or production of coal,
31 divestment from which must be completed no later than one year after the
32 effective date of this subdivision.
33 (b) The comptroller shall be permitted to cease divesting from compa-
34 nies under paragraph (a) of this subdivision, reinvest in companies from
35 which it divested under paragraph (a) of this subdivision, or continue
36 to invest in companies from which it has not yet divested upon clear and
37 convincing evidence showing that as a direct result of such divestment,
38 the total and aggregate value of all assets under management by, or on
39 behalf of, the common retirement fund becomes or shall become: (i) equal
40 to or less than ninety-nine and one-half percent; or (ii) one hundred
41 percent less fifty basis points of the hypothetical value of all assets
42 under management by, or on behalf of, the common retirement fund assum-
43 ing no divestment from any company had occurred under said paragraph (a)
44 of this subdivision. Cessation of divestment, reinvestment or any
45 subsequent ongoing investment authorized by this section shall be
46 strictly limited to the minimum steps necessary to avoid the contingency
47 set forth in the preceding sentence. For any cessation of divestment,
48 and in advance of such cessation, authorized by this subdivision, the
49 comptroller shall provide a written report to the attorney general, the
50 senate standing committee on civil service and pensions, and the assem-
51 bly standing committee on governmental employees, updated semi-annually
52 thereafter as applicable, setting forth the reasons and justification,
53 supported by clear and convincing evidence, for its decisions to cease
54 divestment, to reinvest or to remain invested in fossil fuel companies.
55 (c) Within sixty days of the effective date of this subdivision, the
56 comptroller shall facilitate the identification of fossil fuel companies
A. 8011--A 3
1 from which the common retirement fund is required to divest under para-
2 graph (a) of this subdivision, and file a copy of this list with the
3 attorney general, the senate standing committee on civil service and
4 pensions, and the assembly standing committee on governmental employees.
5 Annually thereafter, the public fund shall file a report with the attor-
6 ney general, the senate standing committee on civil service and
7 pensions, and the assembly standing committee on governmental employees
8 that includes: (i) all investments sold, redeemed, divested or withdrawn
9 in compliance with paragraph (a) of this subdivision; and (ii) all
10 prohibited investments from which the common retirement fund has not yet
11 divested under paragraph (a) of this subdivision.
12 § 3. This act shall take effect immediately.
