More than a million fire fighters, police and other New York State employees who are relying on the already perilously funded New York State Common Retirement Fund as a key component of their nest eggs face a new threat. It comes from a surprising foe: New York’s most liberal legislators.
Senator Liz Kreuger, who represents Manhattan’s East Side, has introduced legislation that would force the fund’s sole trustee and fiduciary, Comptroller Thomas DiNapoli, to quickly sell all holdings in fossil fuel companies, no matter the financial impact it will have on return or risk.
Kreuger and her allies, who have introduced a companion bill in the Assembly, are doing so even over strong objections from DiNapoli and his respected investment team in the Comptroller’s office, who are required by law to act only in the financial best interest of the fund’s beneficiaries, state employees.
DiNapoli is no climate denier. He’s been a champion of environmental causes throughout his career.
In fact, during the event at which he was given the New York State Bar Association’s award for environmental achievement, DiNapoli opposed divestiture from fossil fuels because it would do more harm than good not only for investors, but for popular environmental causes.
In other words, not only would smart investors swoop in and buy the glut of stocks he’d have to dump on the market, he’d lose his powerful seat at the table as a major shareholder. He’s been adept at using that clout to advance environmental causes through shareholder action.
DiNapoli’s divestiture denouncement while receiving an award from the state’s most prominent environmental lawyers was courageous.
His position also exemplifies the meaning of “fiduciary.”
As the sole trustee, investment decisions are DiNapoli’s alone to make. He could divest, but only if he found it was a sound investment decision.
Krueger is not attempting to merely take discretion away from the Comptroller’s office, more critically, she seeks to decimate protection given to state workers by the fiduciary obligation duly placed on the Comptroller. This would allow her to replace his disciplined investment decisions with her own agenda, which she concedes is driven by something other than pure investment results.
The proposal starkly pits the political points Senator Kruger and her allies seek to gain against the financial interests of each investor in the fund.
As DiNappoli explained in a December, 2015 letter to Senator Krueger, (outlining the fund’s many sustainable investments,) “my fiduciary duty requires me to focus on the long-term value of the Fund. To achieve that objective the Fund works to maximize returns and minimize risks.”
State employees, as well as taxpayers who will be expected to bail out already predicted fund shortfalls, have always relied on this fiduciary protection.
Those who favor divestment have conjured up a fantastical new definition of “fiduciary,” one that considers “ethical” investing which take into account unlimited factors beyond return and risk.
So called “green funds” are a legitimate options for individual investors who make that choice for any range of non-financial reasons. However it’s a choice a fiduciary may make only for financial reasons, unless each investor instructs otherwise, something a million New Yorkers won’t unanimously do, given a broad range of “ethical” sensibilities.
DiNapoli boasts of a growing portfolio of green investments in the fund. Those are appropriate because he, with the advice of his investment advisors, believes they are in the fund’s financial interest.
Clearly, he does not believe a sale of fossil fuel investments is in investor’s financial interest at their current trading price and at this time. He’d be right to sell a portion or all of them if and when his financial analysis changes.
Krueger’s gutting of the definition of “fiduciary” would open the floodgates to subordinating the protected interests of state employees to the political whims of legislators and those who have their ear.
From the likes of the anti-Israel BDS movement, where the “D” stands for “divest,” to something akin to the recently introduced California bill which would require the state pension fund to divest from any company participating in building President Trump’s border wall, there’s no end to these competing interests.
That’s why the Comptroller’s office is rightly insulated from allowing retirement funds to be turned into political footballs.
This divestment approach would slash the fund’s value, harming state workers and all New York taxpayers. Krueger’s bill would be a nightmare on Main Street.
Jeff Stier is a Senior Fellow at the National Center for Public Policy Research in Washington, D.C., and heads its Risk Analysis Division.