pensions

In-The-News: New York governor wants state pension fund to divest fossil fuel company stocks

This article originally appeared in the New Castle News, December 22, 2017

ALBANY, N. Y. — As Gov. Andrew Cuomo tells it, the state pension fund — the third largest retirement nest egg for public employees in the nation — should sell off its investment in fossil fuel companies that have polluted the environment with products that worsen global climate change.

"That is the energy of yesterday," he told reporters this week after previewing a proposal that he plans to stitch into his Jan. 3 State of the State speech. "It is literally polluting the planet."

The $201.3 billion New York State and Local Retirement System fund, as it is officially called, is managed by state Comptroller Thomas DiNapoli.

As the fund's sole trustee, DiNapoli has resisted earlier calls from green activists for divestment in oil and natural gas companies. He has contended that as a shareholder with a seat at the table he is in a better position to influence corporate behavior than he would be if he sold off the pension fund's stake in those companies.

Cuomo, who has no oversight role over the fund, cast his interest in an avuncular way, suggesting that he wants to "protect the retirement savings of New Yorkers." But with the governor poised to seek a third term in Albany in 2018 and leaving the door open for a run for the White House in 2020, the pension fund divestment issue has already triggered speculation that political considerations were a factor in the proposal.

But the governor's move has spawned concerns that a green energy litmus test over investment decisions could end up limiting the fund's growth should Cuomo's prognostications regarding energy sector stocks prove to be flawed.

"The comptroller needs to stick to his guns and understand that his fiduciary responsibility is to the beneficiaries" of the fund, said Christopher Burnham, the former Connecticut state treasurer who served as the sole trustee of the Nutmeg State's pension fund from 1995 to 1997.

"You have to invest these monies cautiously, carefully and wisely, and without allowing a personal agenda to play a role in how you execute your duties," said Burnham, a Republican and native New Yorker who is chairman of Cambridge Global Advisors in Virginia.

DiNapoli and Cuomo are downstate Democrats, though at times the relationship between the two has been chilly. Since Cuomo advanced his pension proposal, the comptroller has avoided arguing with the governor over the issue, instead signaling that he welcomes the "opportunity to partner" with Cuomo via an advisory council aimed at "achieving investment returns."

DiNapoli further stated that while he has "no immediate plans to divest our energy holdings," the New York pension fund has been a leader in advancing climate change goals and is increasing its current stake of more than $5 billion in "sustainable" investments.

"We believe in engagement with companies," DiNapoli said in responding in June to a CNHI inquiry about a push for divestment by a coalition calling itself Elected Officials to Protect New York.

Republicans lost no time in accusing Cuomo of meddling in an arena where they say he has no business.

“The public pension fund does not exist so Andrew Cuomo can use it to build a campaign platform for a presidential run," said Assembly GOP Leader Brian Kolb, who has announced he is a candidate for governor.

By taking on the fight for divestment, though, Cuomo may be choosing a pathway that could put octane into any future run for the presidency, said Harvey Schantz, the chairman of the political science department at the State University at Plattsburgh.

"Running for governor in New York state and running for the Democratic nomination for the presidency present overlapping opportunities," Schantz said. "You have to show liberal bona fides and you have to show executive ability. First, he has to get re-elected as governor. But by staking out liberal positions, he could be helping himself in New York and also helping himself win the Democratic nomination."

In advancing his proposal, Cuomo pointed out that the World Bank plans to stop financing gas and oil exploration projects, and the Norwegian sovereign wealth fund is already shedding its fossil fuel investments.

While it is DiNapoli who calls the shots at the pension fund, Cuomo is not out of line in suggesting that its portfolio mix be shuffled in ways that promote greater reliance on renewable energy, said Larry Levy, a longtime observer of New York politics and director of the National Center for Suburban Studies at Hofstra University,

Levy suggested that Cuomo has been steadily building his record as an advocate for expanded use of solar and wind energy and is the architect of the state's policy to have the state's energy diet include no less than 50 percent renewable energy by 2030. The Cuomo administration, he added, has also kept the gas drilling technique known as hydraulic fracturing from being introduced in New York.

"He can't be accused of posturing on this issue because he has gone all-in on reducing the reliance of fossil fuels in a big way," he said. "It's not as if he has suddenly discovered an issue and is coming out to please a certain constituency."

As to the speculation that Cuomo is preparing a White House run, Levy said, "2018 is 2020. If a U.S. senator or governor doesn't knock it out of the park in his home state in 2018, then he or she is going to drop precipitously on any list for any national election."

Commentary: Pensions should avoid politics and invest for the benefit of our workers

This OpEd authored by Cambridge Global Chairman, Christopher Burnham, originally ran in the The Hill, December 10, 2017.

Why do public fiduciaries think they should impose their political agenda on other people’s retirement benefits? Is not the standard of care to manage public retirement funds with the highest return at the lowest reasonable risk? With more than 50 percent of all state pension funds significantly underfunded and at least five states, including my native Connecticut, facing immanent bankruptcy due to grossly unfunded state employee and teacher pension systems, why would both beneficiaries and taxpayers, who will be forced to makeup those liabilities, want to politicize the management of the money? As I will also be a beneficiary in a few years, please manage the money without a political agenda.

When I was elected state treasurer of Connecticut in 1994, I inherited the worst performing state pension system in America for the previous 10 years. Within the first six months we fired the vast majority of money managers and indexed 75 percent of the portfolio. Yet, I was attacked for holding tobacco stocks in the portfolio, by virtue of the fact that we owned an S&P 500 stock index fund. I refused to play politics with the pension, particularly after 10 years of politics had relegated pension fund performance to the gutter. Instead, we focused on the highest return at a reasonable risk, and performance skyrocketed from dead last to the top 25 percent in the country, overnight.

Now a new era of activists, without any regard to fiduciary responsibility, is injecting politics into pension systems, yet again, by trying to make states, counties and municipalities across the country divest of shares in energy companies. Why would we seek to undermine the integrity of a secure retirement for our teachers and government employees? If they, individually, want to invest in activist funds, they should force states to move to a system similar to the U.S. government employee retirement system, or to a full or partial defined contribution system, such as Rhode Island recently did. Then retirees can make decisions for themselves.

However, to force a political agenda to be shoved into the investment of their retirement accounts is wrong, and a clear violation of fiduciary responsibility. Moreover, if you divest from energy investments, where do you stop? If you remove energy companies, why not remove fast food companies? How about booze, gambling and producers of sugary drinks? As a combat veteran, I am very grateful for the strength of our American defense industry and believe we should invest more in defense companies. Would everyone else agree with me?

Additionally, pressure is mounting on banks. Recently, U.S. Bank, the leading provider of financial products and services to the federal government for over 30 years, has ceded to these activist groups and announced radical changes to corporate policies, including ceasing its investments in energy infrastructure. Its management announced that U.S. Bank plans to stop providing construction for energy pipelines, although it has not announced that that it will no longer service the major railroad carrier, which carry all of the coal Minnesota uses to produce over 30 percent of their electric energy needs. Fiduciary responsibility also means responsibility to shareholders.

We must not allow individual political and ideological agendas to break the special trust and confidence our government and teacher retirees should have in those who are elected or appointed to be the fiduciaries of retirement systems across our country. Unless mandated by law, such as owning shares in companies doing business in North Korea, there is no room for ideological agendas in the management of other people’s money, particularly our teachers and government employees.

Christopher B. Burnham is the former state treasurer of Connecticut, where he was sole fiduciary of the $16 billion Connecticut pension system, and former undersecretary general of the United Nations, where he was sole fiduciary of the $42 billion United Nations pension system. He is now chairman of consulting firm Cambridge Global Advisors.