New York Confronts Exxon On Climate Risks
The New York Pension Fund and other shareholders are calling on ExxonMobil to disclose the full risks that climate change and an anticipated transition away from fossil fuels pose to their stocks. (Photo: Mike Mozart, Flickr CC-BY 2.0)
Thomas DiNapoli iis the Comptroller of New York State and trustee of its $178.3 billion Pension Fund. He won an appeal to the Securities and Exchange Commission to force ExxonMobil to report the risks the oil giant will face from climate change and likely increased fossil fuel regulation. Comptroller DiNapoli tells host Steve Curwood that states and their pension funds can help shape industry’s response to global warming.
CURWOOD: From the Jennifer and Ted Stanley studios at the University of Massachusetts Boston and PRI, this is Living on Earth. I’m Steve Curwood. Massachusetts and the US Virgin Islands are opening investigations parallel to one already begun by the State of New York to probe allegations that ExxonMobil suppressed its climate research and misled investors and the public. And the State of New York pension fund has won a ruling from the Securities and Exchange Commission that compels ExxonMobil to allow its shareholders to vote on a resolution to force the company to say how its profitability may be affected by climate change and related regulations. We’re joined now from Albany by the New York State Comptroller Thomas DiNapoli. He’s the trustee of the state's nearly 180 billion dollar pension fund, one of the investment groups that filed the shareholder resolution and won the appeal after Exxon tried to block it. Welcome to Living on Earth, Comptroller Di Napoli.
DINAPOLI: Great to be on your show.
CURWOOD: So how much does the state of New York retirement fund have invested in Exxon?
DINAPOLI: About $850 million at this point. You know, obviously the numbers fluctuate over time, but it's about $850 million right now.
CURWOOD: And who are the other sponsors of this shareholder resolution and how much do they have invested?
DINAPOLI: Well, there are a number of co-sponsors, but probably the biggest co-sponsor that we have is the Church of England. So when you accumulate all of the various sponsors, you're certainly talking about hundreds of millions of dollars in additional investment.
CURWOOD: So, in other words, together you folks bringing this resolution have got more than $1 billion invested in Exxon.
DINAPOLI: Oh easily so. Absolutely.
CURWOOD: So why did you decide to do this now?
DINAPOLI: We've been involved with the climate issue and environmental issues generally as an investor. We believe strongly that to protect the long-term value of our holdings we want to be invested in companies that have a focus on sustainability. We're a pension fund, so we've been around for over 90 years, we expect to be around forever. We have a long-term investment horizon. We're in effect a perpetual investor, so we always take a long-term view, and obviously the climate issue is emerging as one of global significance and those involved with the oil and gas fossil fuels are going to be directly impacted by the move to the lower carbon economy. Coming out of Paris Agreement and you see this international commitment over 180 the countries signing onto the goals of Paris, it's clear that the fossil fuel companies can't ignore the reality of what's coming. So how will they anticipate the regulatory changes in a way that will contribute positively to dealing with the issue of climate change? But as important to us as investors, is making sure the company will continue to be profitable and sustainable over the long term and if they don't incorporate climate change considerations into their business plan, they are going to be hurting our investment in addition to not helping the planet deal with this issue of climate change.
CURWOOD: What kind of response would you like to have from Exxon? What kind of plan to deal with the climate would like to have them lay out?
DINAPOLI: Well, we certainly want a recognition that this is an issue that they need to contend with. How do they intend to deal with issues like their reserves, you know the issue with stranded assets that's out there? How do they view that in terms of the impact on their bottom line, and in the whole energy area? There are opportunities now with with alternative and clean energy sources, new technologies, wind, solar...you go down the list of the new areas. Well, will all the expertise in financial power that ExxonMobil has, what are they doing to be making the transition to the kinds of energy technologies that will be part of the low carbon future where they can continue to make money for their investors and move away from what has been the traditional energy strategy that they have that clearly is going to have a limited horizon? So, how they spell all that out, we'll leave to them, but I think there is great opportunity for them to come up with a recognition of the problem and the challenge, assess how they can in the short run navigate through what that means for them as as a corporation, and I think most importantly, long-term how do they view their leadership role in the energy sector with the transition to a different kind of energy strategy, and how can they play a role in that? And obviously to the extent that ExxonMobil has assets around the globe as well, the impact of rising sea level...what will that mean in terms of their business operations? You're looking at it from a very short-term perspective of impacts, how are they preparing for the resilience of their own facilities?
CURWOOD: Now, usually shareholder resolutions fail. You have more than $1 billion invested in Exxon among you, but I think their market capitalization is more like 350 billion dollars. So what exactly is the point of bringing this action?
DINAPOLI: Well, we certainly want to have attention focused on ExxonMobil. They're becoming an outlier. A number of their peers have already agreed to incorporate climate change analysis into their corporate decision-making. We don't want ExxonMobil to be one of the big companies that's left out of the loop in terms of that very smart business strategy. We do hope whenever we file a resolution that they will see the light, if I can put it that way, and they will do the right thing. If they will not, and that seems to be the case thus far with ExxonMobil, we will bring it to a vote, and our experience has been on other issues and other shareholder resolutions, we may not win on the first round, but over time if it's a good position that's reflected in the wording of the resolution, you see an increase in the shareholder support for those resolutions and very often companies do come around and do choose to do the right thing.
CURWOOD: Now what other shareholder resolutions on these lines have you asked for at the other oil companies?
DINAPOLI: Well, similar in terms of climate change, that's an issue that we've been very concerned about. We've had some resolutions pending with Chevron as an example to require on their board of directors an independent board member who would have an environmental expertise to make sure that issues related to the environment not just climate change but other environmental issues as well would be at the forefront of corporate policymaking. We've also had resolutions dealing with deforestation in terms of the impact that that has on greenhouse gas emissions, particularly with those companies that are involved with the products that use a great deal of palm oil. Dunkin' Donuts is an example of a company that agreed to our resolution in that area. But our goal at the end of the day, as much as we like to do the right thing, our bottom line is that we are trying to provide retirement security for over one million New Yorkers and their families who are part of our retirement system and we think this kind of corporate engagement is a very very key part of protecting the long-term value of our investment.
CURWOOD: Well, why not simply divest fossil fuel equities? Recently Trillium Asset Management estimated that the Massachusetts state pension fund lost more than half a billion dollars from fossil fuel stocks in the last fiscal year. A number coal companies have filed for bankruptcy and at present environment the oil companies don't seem to be doing all that well either.
DINAPOLI: Well, that question comes up a great deal. I think we have to look up again the long term. For many years these investments have produced very significant returns and the positive impact on our bottom line. We actually were asked to do an analysis over the past five years of how much did we lose by our investments, and we looked at our figure, holdings in all those of our companies on the Carbon 200 list. We actually found that we have made about $1.8 billion, so I think sometimes those that advocate for divestment, they just look at the value of a stock or a price of the stock today versus X number of years ago without realizing that our investments or not just measured on the value of the stock year to year. There are trades that go on, there are dividends that are paid. So we actually are still seeing a net positive in terms of our investment.
You're absolutely right in regards to coal, that's been a different picture, but our coal holdings are certainly much smaller and really have been going down. We announced not too long ago what I think was a more effective strategy than divestment, we announced that we had created a customized low carbon index fund and we moved $2 billion of our public equity holdings into this fund. It had an exclusion with regard to pure play coal companies so there's no coal company in this index, and what we're going to do over time is wait; those companies that do have a responsible strategy when it comes to the issue of climate change and environmental considerations and we're going to incentivize those companies that are doing the right thing by putting more money towards them and take away money from companies that aren't doing the right thing. I think that kind of approach will be more protective of our long-term interest as an investor and will start to incentivize a strategy that will encourage companies to do the right thing. If we sold all of our investment in ExxonMobil, for example, ExxonMobil is not about to go out of business tomorrow because we are pension fund is not invested with them, and we would lose that opportunity to be at the table to introduce the kind of shareholder resolution, to push the company in the right direction to deal with climate change, we would lose the opportunity to have that voice to try to have them do the right thing.
CURWOOD: Before you go, tell me why it's important for states to take the lead in these sorts of matters.
DINAPOLI: Well, certainly from a New York perspective, having gone through major weather events, I mean Superstorm Sandy is an obvious one, New York City obviously has got miles and miles of coastline, Long Island is a significant population center, lower Manhattan, the global capital for finance - a lot of that are is built on fill that goes back to colonial times - so rising sea levels will certainly have a real impact on us and in a very very direct and a very very personal way. So I think to the extent that public pension funds in addition to wanting to make money understand the public arena, and states, particularly those that have a coastline, are very vulnerable to the rising sea levels that are a consequence of greenhouse gas emissions and climate change. We really do need to be part of the vanguard saying, “this is an issue that we all need to be engaged and focused on.”
When I was in Paris and being there when the climate talks were going on, some of most compelling stories that you heard were from those that live on island nations that already have been seeing rising sea level impacts, and it really drove the point home that for many of us in this country we are not so far removed from that, and I do think that many in other parts of the globe are ahead of us in the US, in terms of having a sense of urgency about this issue. So I'd like to see the states be in the lead. I think pension funds have a unique role to play and our plan is to not to let up on this. We're protecting our investment and certainly we're protecting the place where we live. For New York to continue to be the great state that it is, we need an economy that's not going to be disrupted by severe weather events that result in tremendous infrastructure damage, the need to spend more money on rebuilding and on resilience, the litigation and insurance costs that come with this. The impacts of not dealing with this issue are way beyond just looking at how does it affect our investment from the perspective of the pension fund. There are many other economic and financial negatives to our not dealing with this issue.
CURWOOD: Thomas DiNapoli is the Comptroller of the State of New York and trustee of the state and local employees pension fund. Thanks for coming on the show.
DINAPOLI: Steve. Thank you. It was great to talk with you.
CURWOOD: An Exxon official says shareholders will receive information about management’s views of the resolution in the company’s proxy statement. And a spokesperson says the allegations of climate misinformation “are politically motivated and based on discredited reporting by activist organizations.”
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