In a rare move for a state pension fund, the New York State Common Retirement Fund has released a list of 21 shale oil and gas companies from which it plans to divest.
The move, announced Wednesday, represents $238 million of the fund’s $279.7 billion in assets under management. New York state comptroller Thomas DiNapoli’s office reviewed a total of 42 companies and found 21 that “failed to show viable transition strategies.”
The divestment is just one piece of the pension fund’s larger plan to reach net zero emissions by 2040. Divesting wholesale from a list of energy companies is unusual among state pension funds, as is publishing specific firm names. “The shale oil and gas industry faces numerous obstacles going forward that pose risks to its financial performance,” DiNapoli said. “To protect the state pension fund, we are restricting investments in companies that we believe are unprepared to adapt to a low-carbon future.”
The decision to divest was not based on whether a company produces oil or gas, but instead on whether they have made plans to change.
“Generally, companies like Hess, Pioneer, and Chesapeake that failed to meet our minimum standards lacked viable transition strategies and were continuing to invest heavily in high-risk and high-cost assets,” said Mark Johnson, a spokesperson for DiNapoli, via e-mail. “Those that met our minimum standards, like EQT Corp., CNX Resources Corp., and Arc Resources Ltd., were more likely to be setting net-zero targets or greenhouse gas reduction targets, assessing and disclosing their climate risks, and investing in lower risk and lower cost assets,” he added.
The list of companies that do not meet fund standards includes APA, Apache, Baytex Energy, Birchcliff Energy, Callon Petroleum, Centennial Resources Development, Chesapeake Energy, Comstock Resources, Continental Resources, Crescent Point Energy, Crew Energy, Diamondback Energy, Enerplus, Hess, Laredo Petroleum, Magnolia Oil & Gas, Matador Resources, Oasis Petroleum, PDC Energy, and Pioneer Natural Resources.
In December 2020, the pension fund released a sweeping plan to hit net zero emissions by 2040. The plan began with a review of nine oil sands companies, with the fund ultimately divesting from seven of those that did not adequately show that they are transitioning out of oil sands production.
According to the 2020 announcement, this deep dive would be followed by analyses of integrated oil and gas, other oil and gas exploration and production, oil and gas equipment and services, and oil and gas storage and transportation. The pension fund said that by 2025, minimum standards for these sectors and suitability standards would be complete.
“Recent price spikes should remind us just how risky it is to continue to rely on fracked gas for heating and power,” state senator Liz Krueger said in a statement. “Those price spikes also make clear how risky it is to continue to invest in shale gas: When the price is low, it’s unprofitable, and when the price is high it drives society even faster toward renewable alternatives.
Many state pension funds take an engagement approach to fossil fuels. CalSTRS, for instance, previously said that “divestment is a last-resort action,” and instead has engaged with companies, urging change as it did with Exxon. Likewise, CalPERS’s investment policy shows that its preferred approach to stakeholder concerns is engagement.
Maine’s Public Employees Retirement System is in the process of considering what new state legislation means for divestment. A law passed in 2021 requires the fund to divest from fossil fuel companies by 2026, as long as doing so is “in accordance with sound investment criteria and consistent with fiduciary obligations.”
While the state didn’t provide a specific list, it defined fossil fuel companies as those that are either among the top 200 publicly traded companies with the largest fossil fuel reserves; among the 30 largest public companies with coal-fired power plants; have core business in construction or the operation of fossil fuel infrastructure or exploration, extraction, refining, processing, or distribution of fossil fuels; or receive more than half of their gross revenue from one of these activities.
As for New York? The shale oil and gas companies it kept on board may not have a permanent place in the portfolio. “We will continue to monitor and engage with all of these companies — even those that meet our minimum standards — because we continue to have concerns about their transition readiness and want to closely monitor and annually reassess their progress or lack thereof,” Johnson said.