The New York State Common Retirement Fund, the third largest pension fund in the US with a quarter of a trillion dollars in assets, has pledged to purge its portfolio of energy companies that do not have a plan to cut emissions and transition away from fossil fuels.
The move marks a significant shift for the fund and a signal moment for the global divestment movement.
After eliminating 22 thermal coal producers from its portfolio in June and promising to reconsider oil sands companies, the fund has decided to expand its re-examination of fossil fuel investments to cover its entire holdings.
Over the next four years it will conduct reviews of shale oil and gas companies, integrated oil majors and fossil fuel exploration, servicing, storage and transport companies, the fund said on Wednesday.
The retirement scheme has previously resisted activists’ calls to ditch fossil fuels, but Tom DiNapoli, New York comptroller and sole trustee of the fund, said companies that are not “transition ready” posed too great a risk to the fund’s long-term returns to remain in the portfolio.
He said divestment remained a “last resort” and held out hope that the fund’s strategy shift would push companies to change their business models.
“Do you embrace the goals of Paris? Do you embrace the need for us to deal with the climate issue? Do you understand the importance for all of us, not just pension fund investors . . . to understand the need to get to net zero?” he said. “If you are willing to embrace the change that’s required . . . us staying invested with you for the long term is much more likely.”
New York will roll out a list of “minimum standards” companies are expected to meet to remain in its $226bn portfolio. For coal companies it looked at those making 10 per cent or more of their revenue from thermal coal and asked for details on their plans to shift away from the carbon-intensive energy source and invest in renewables. Only five of the 27 companies in its portfolio cleared the bar.
The fund has yet to determine its minimum requirements for other fossil fuel sectors, but climate activists said they had been impressed with how tough the criteria were on coal.
“We feel very good about this,” said Richard Brooks, senior strategist at 350.org, one of the climate groups that has been critical of Mr DiNapoli in the past. “They are setting the minimum standards high enough. Companies’ [decarbonisation] plans have to be real.”
Mounting pressure from large climate-conscious investors has prompted some US energy companies to follow their European peers in setting emissions targets, including goals to become carbon neutral by some measures.
New York state is to extend its pressure campaign beyond the energy sector. The pension fund also on Wednesday set a goal of carbon neutrality for its entire portfolio by 2040 and Mr DiNapoli pledged to vote against directors at companies in all sectors that did not adopt a credible plan to cut emissions.
The fund would eventually expand its divestment programme to the rest of the market, he said. “This is an issue where the entire global economy has to move in this direction.”