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Feb 10, 2022

New York’s public pension fund to divest from 21 companies over transition risk

Review focused on shale oil and gas industry

New York’s public pension fund has announced it will divest from nearly two dozen stocks involved in shale oil and gas production.

The New York State Common Retirement Fund, which manages around $280 bn on behalf of more than 1 mn individuals, says the 21 companies have ‘failed to demonstrate they are prepared for the transition to a low-carbon economy’. 

‘As market forces and new policies drive the energy transition, we must align our investments with a profitable and dynamic future,’ says Thomas DiNapoli (pictured), New York State Comptroller, who acts as trustee of the fund. 

‘The shale oil and gas industry faces numerous obstacles going forward that pose risks to its financial performance. To protect the state pension fund, we are restricting investments in companies that we believe are unprepared to adapt to a low-carbon future.’

Investors are increasingly focused on transition risk - the danger for companies of changing regulations and investments as societies try to reduce their reliance on carbon and embrace greener energy sources. 

Net-zero pledges

Many businesses have responded by releasing plans of how they will achieve net-zero greenhouse gas emissions over the coming decades. For example, 217 companies and organizations have signed The Climate Pledge, an agreement to achieve net-zero emissions by 2040. 

A study released this week, however, claims that some large companies are exaggerating their carbon-reduction plans. Out of 25 major companies with net-zero goals, just three ‘clearly commit to deep decarbonisation of over 90 percent of their full value chain emissions’ by their target date, according to the research by NewClimate Institute. 

The divestment by New York’s public pension fund is part of a wider climate strategy. In 2019, the fund released an action plan that includes committing $20 bn to sustainable investments and establishing metrics to monitor companies’ transition readiness. A year later, it launched the goal to have a net-zero investment portfolio by 2040.

The action against the shale oil and gas companies will see $238 mn of debt and equity holdings sold in a ‘prudent manner and timeframe,’ says the fund. A previous review of oil sands and coal companies saw 34 companies removed from the portfolio. Integrated oil and gas companies will be the next to face scrutiny.