NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A3712A
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
SUMMARY OF SPECIFIC PROVISIONS:
Section 1: The act is named the 'fossil fuel divestment act."
Section 3a: Amends the Retirement an& 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 five years of the effective date of this subdivision.
Section 3b: 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.
Section 3c: 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, fisheries, 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 21C, 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 85.12-billion in public pension money inn
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 lose 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 environmental 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 804 of worldwide coal reserves, including 904 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.
Divestment is financially prudent, morally imperative, responsible poli-
cymaking, and the time for action is now.
PRIOR LEGISLATIVE HISTORY:
2015/16: A8011-A Referred to Governmental Employees
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
Undetermined
EFFECTIVE DATE:
This act shall take effect immediately.
STATE OF NEW YORK
________________________________________________________________________
3712--A
2017-2018 Regular Sessions
IN ASSEMBLY
January 30, 2017
___________
Introduced by M. of A. ORTIZ, MOSLEY, FAHY, SIMON, THIELE, GOTTFRIED,
SEAWRIGHT, O'DONNELL, STECK, ENGLEBRIGHT, HARRIS, CARROLL, GLICK,
COLTON, BLAKE, NIOU, JAFFEE, RIVERA, DAVILA, RODRIGUEZ, ZEBROWSKI,
BARRON -- Multi-Sponsored by -- M. of A. COOK -- read once and
referred to the Committee on Governmental Employees -- recommitted to
the Committee on Governmental Employees in accordance with Assembly
Rule 3, sec. 2 -- 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
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD05953-03-8
A. 3712--A 2
1 of investments and shall have served, or shall be serving, as a senior
2 officer or member of the board of an insurance company, banking corpo-
3 ration or other financial or investment organization authorized to do
4 business in the state of New York. The committee shall advise the comp-
5 troller on investment policies relating to the monies of the common
6 retirement fund and shall review, from time to time, the investment
7 portfolio of the fund and make such recommendations as may be deemed
8 necessary.
9 (b) The comptroller shall appoint a separate mortgage advisory commit-
10 tee, with the advice and consent of the investment advisory committee,
11 to review proposed mortgage and real estate investments by the common
12 retirement fund. In making investments, as authorized by law, the comp-
13 troller shall be guided by policies established by each committee from
14 time to time; and, in the event the mortgage advisory committee disap-
15 proves a proposed mortgage or real estate investment, such shall not be
16 made.
17 (c) No officer or employee of any state department or agency shall be
18 eligible for membership on either committee. Each committee shall
19 convene periodically on call of the comptroller, or on call of the
20 chairman. The members of each committee shall be entitled to reimburse-
21 ment for their actual and necessary expenses but shall receive no
22 compensation for their services.
23 3. (a) Notwithstanding any provision of law to the contrary, the comp-
24 troller shall not have the power to invest the available monies of the
25 common retirement fund in any stocks, debt or other securities of any
26 corporation or company, or any subsidiary, affiliate or parent of any
27 corporation or company, among the two hundred largest publicly traded
28 fossil fuel companies, as established by carbon content in the compa-
29 nies' proven oil, gas and coal reserves. The comptroller shall, in
30 accordance with sound investment criteria and consistent with his or her
31 fiduciary obligations, divest any such stocks or other securities wheth-
32 er they are owned directly or held through separate accounts or any
33 commingled funds. Divestment pursuant to this subdivision must be
34 completed within five years of the effective date of this subdivision,
35 with the exception of companies engaged in the mining, extraction or
36 production of coal, divestment from which must be completed no later
37 than one year after the effective date of this subdivision.
38 (b) The comptroller shall be permitted to cease divesting from compa-
39 nies under paragraph (a) of this subdivision, reinvest in companies from
40 which it divested under paragraph (a) of this subdivision, or continue
41 to invest in companies from which it has not yet divested upon clear and
42 convincing evidence showing that as a direct result of such divestment,
43 the total and aggregate value of all assets under management by, or on
44 behalf of, the common retirement fund becomes or shall become: (i) equal
45 to or less than ninety-nine and one-half percent; or (ii) one hundred
46 percent less fifty basis points of the hypothetical value of all assets
47 under management by, or on behalf of, the common retirement fund assum-
48 ing no divestment from any company had occurred under said paragraph (a)
49 of this subdivision. Cessation of divestment, reinvestment or any
50 subsequent ongoing investment authorized by this section shall be
51 strictly limited to the minimum steps necessary to avoid the contingency
52 set forth in the preceding sentence. For any cessation of divestment,
53 and in advance of such cessation, authorized by this subdivision, the
54 comptroller shall provide a written report to the attorney general, the
55 senate standing committee on civil service and pensions, and the assem-
56 bly standing committee on governmental employees, updated semi-annually
A. 3712--A 3
1 thereafter as applicable, setting forth the reasons and justification,
2 supported by clear and convincing evidence, for its decisions to cease
3 divestment, to reinvest or to remain invested in fossil fuel companies.
4 (c) Within sixty days of the effective date of this subdivision, the
5 comptroller shall facilitate the identification of fossil fuel companies
6 from which the common retirement fund is required to divest under para-
7 graph (a) of this subdivision, and file a copy of this list with the
8 attorney general, the senate standing committee on civil service and
9 pensions, and the assembly standing committee on governmental employees.
10 Annually thereafter, the public fund shall file a report with the attor-
11 ney general, the senate standing committee on civil service and
12 pensions, and the assembly standing committee on governmental employees
13 that includes: (i) all investments sold, redeemed, divested or withdrawn
14 in compliance with paragraph (a) of this subdivision; and (ii) all
15 prohibited investments from which the common retirement fund has not yet
16 divested under paragraph (a) of this subdivision.
17 § 3. This act shall take effect immediately.
