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Think Tank Rips New York City’s Fossil Fuel Divestment Plan

The American Council for Capital Formation released a report Thursday criticizing New York’s focus on ESG investing.

A Washington-based think tank, the American Council for Capital Formation, has criticized New York City’s decision to divest its pension funds of fossil fuels.

In a report released Thursday morning, the ACCF, which tends to focus on free market and pro-business policy, called the decision “another alarming example of prioritizing politics over performance.” The think tank said the choice could cost the city billions and worsen its pensions’ funded status.

New York City Mayor Bill de Blasio and Comptroller Scott Stringer announced January 10 that the city has begun analyzing ways it can divest from fossil fuel owners within five years. New York’s pension funds — which hold about $5 billion in fossil fuel securities while managing a total of $189 billion of assets — would be the first major pension plan to do so.

“Although environmental issues — including climate change — are legitimate concerns, pension fund managers have a fiduciary duty to prioritize performance,” the ACCF said.

The report is the latest in a series by the group critiquing public pension funds focused on environmental, social and governance investing — or what it calls “politics” — rather than maximizing returns. The ACCF previously targeted the California Public Employees’ Retirement System for its decision to focus on ESG. In response, CalPERS said the December report “cherry picks a thin set of loosely-related facts.

According to the ACCF’s report on Thursday, New York City’s pension funds are underfunded by a weighted average of about 62 percent, compared to the national average of 72.2 percent.

“The performance of the New York City Pension Funds over the past decade has not kept pace with what is needed to stay solvent over the long term,” the ACCF said. “Unfortunately, even conservative estimates project unfunded liabilities to be in excess of $56 billion.”

The think tank said in its report that to cope with its underfunded status, New York has increased taxpayers’ contributions to its pension funds. Last year, New York City contributed $9.3 billion to its pension funds, jumping from $1.4 billion in 2002, according to the report.

ACCF cited a recent survey from the Spectrem Group, which found that 66 percent of New York retirement system members want managers to focus on maximizing returns and returning the city to fully funded status. That study also showed that 80 percent of New York members believe their pensions are fully-funded.

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“Safeguarding the retirement of our city’s police officers, teachers, firefighters and city workers is our top priority, and we believe that their financial future is linked to the sustainability of the planet,” Stringer said in the city of New York’s January 10 announcement.

City councilman Keith Powers agreed.

“Today’s announcement sends a message that clean investments are a priority and ensures pensions are funded with the best interest of New Yorkers in mind,” Powers said in the January 10 statement.

The press office for New York’s city hall did not respond to a phone call and email seeking comment.

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