In a groundbreaking move, New York City Comptroller Brad Lander has publicly endorsed a policy that could exclude all fossil fuel infrastructure from the city’s pension investment portfolio. This initiative puts the spotlight on three prominent pension funds—the New York City Employees’ Retirement System, the Teachers’ Retirement System, and the Board of Education Retirement System. By taking this decisive stance, these funds could become the first major pension funds in the United States to completely disinvest from midstream and downstream fossil fuel infrastructure within their private market investments. Lander firmly stands by the assertion that “Climate risk is financial risk,” emphasizing the critical nature of a systematic approach to evaluating investments in light of climate change.
With a staggering combined asset value of $285 billion, these pension funds have already shown commitment towards reducing their carbon footprints. Backed by a Net Zero Implementation Plan adopted in 2023, the funds have undertaken numerous actions aimed at lowering carbon emissions through strategic investments in renewable energy and climate solutions. Lander’s proposal is slated to be presented to the trustees of these funds in early 2025, representing an apex of coordinated planning and action geared towards sustainability.
These pension funds’ previous decisions to divest from fossil fuel reserve owners through public equity holdings demonstrate a clear trajectory towards a more environmentally-conscious investment strategy. However, the recent proposal could expand this divestment further, extending to infrastructure investments such as pipelines and liquefied natural gas (LNG) terminals. This approach allows the funds to continue benefiting from past investments while staking a claim in the ongoing global discourse on sustainability and accountability.
Lander’s initiative reflects a broader understanding of the modern financial landscape. By broadening the criteria for exclusion to encompass downstream and midstream fossil fuel infrastructure—elements often overlooked in traditional divestment strategies—the comptroller is directing the conversation around licensed risks as they relate to climate change. Specifically, the proposal is pivotal in addressing infrastructure like pipelines and LNG terminals that play a substantial role in the fossil fuel economy.
Despite the push towards greater sustainability, Lander acknowledges that current fossil fuel infrastructure holdings will remain in place, as liquidating them is not the decision of the Bureau of Asset Management. It’s essential to note that the exact valuation of these holdings in midstream and downstream fossil fuel infrastructure remains to be quantified, further illustrating the need for informed decision-making as part of the ongoing proposal research and development.
In stark contrast to New York City’s progressive initiatives, several Republican-led states have taken a different approach, directing their policies to promote and incentivize investments in fossil fuel industries. This juxtaposition highlights the complexities faced by institutional investors navigating a polarizing political landscape. As skepticism towards fossil fuel investments grows in blue states like New York, pension funds are championing greater accountability and transparency from financial institutions involved in financing fossil fuel projects.
In light of these contrasting policies, Lander remarked that New York City is developing a reputation as a challenging partner for private equity and infrastructure funds—a position he considers beneficial. This move may serve as a clarion call for responsible investment practices that prioritize environmental sustainability amidst the looming threats posed by climate change.
As the New York City pension funds embark on this bold initiative, the implications extend well beyond local markets. Should this trend gain traction across other municipal and state pension funds across the country, it could pave the way for a significant shift towards responsible investing that prioritizes sustainability over short-term financial gains. The decision to adopt a systemic risk lens when assessing investment risks underscores the imperative of addressing climate change as a core financial principle. In associating climate risk with potential financial instability, Lander’s proposal urges stakeholders to rethink traditional investment methodologies. This could very well be the start of a larger movement shaping the future of pension fund management, intertwining fiscal responsibility with the imperative of safeguarding our planet for future generations.