Albany State Legislative

Forum on Divestment
Feb 29, 2016
By Toby Heaps, CEO,
Corporate Knights

About Corporate Knights

Independent Canadian-based media and
financial research B Corp
More than a decade of experience quantifying
corporate sustainability including: Global 100
Most Sustainable Corporations in the World
Newsweek Green Rankings
Sustainable Stock Exchanges Ranking
Designed and developed Clean Capitalist
Decarbonizer platform to measure and clean
portfolios to investor specifications
Assist financial industry initiatives that raise
awareness about climate risk, such as the
Montreal Carbon Pledge and act as secretariat
to Council for Clean Capitalism

What does divestment from fossil fuels mean?

S.5873/A.8011-A, the Fossil Fuel Divestment Act calls for divestment of the Carbon
Underground 200 (CU 200), the largest publicly traded fossil fuel companies, as
defined by carbon content in the companies proven oil, gas, and coal reserves.
This is a good start, but does not address coal-fired utilities, which make up the biggest
source of carbon emissions in most portfolios.

%S&P500 weighted carbon intensity

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

%S&P500
weighted carbon
intensity
Coal 100

Oil 100

Coal Util
(>30% coal)
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Source: Corporate Knights

February 29,2016

Why not Divest (lower returns)?

Divesting from fossil fuel companies could result in lost returns.

Not divesting from fossil fuels cost New York Common Retirement Fund (The
Fund) an estimated $5.3 billion over the past three years within its domestic and
international equity portfolio, according to the Corporate Knights Clean Capitalist
Decarbonizer scenario testing tool (see Appendix and www.decarbonizer.co).

This is directionally consistent with market trends for major indices. Over the five-year
period to December 31st 2015, the MCWI Ex Fossil Fuels Index has outperformed the
MSCI ACWI by an annualized 136 basis points. The FTSE Environmental
Opportunities 100 Index--which tracks the 100 biggest companies with significant
(>20%) revenue exposure to environmental solutions returned an annualized 5.7%
over the five year period to December 31st, 2015, while the MSCI World Energy Index
of the 100 largest oil, gas and coal companies lost an annualized 3.21%.

But in a letter dated December 30, 2015, State Comptroller Thomas DiNapoli wrote
Senator Liz Krueger that from 2010 to the present factoring in all purchases and sales
of stocks and dividends the Funds oil and gas holdings gained $1.8 billion and its coal
stocks lost $261.6 million. How does this square? The question is not how much the
Funds fossil stocks gained or lost, but how much the Funds fossil fuel stocks would
have gained or lost if that money would have been put to work in the stock market in
general. By this measure the Fund lost billions,
$5.3 billion by our estimate.
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Why not Divest (no impact)?

Divestment wouldnt actually change anything

If we have learnt one thing about previous high-profile divestment campaigns, it is that
they work. According to the Oxford study on Stranded Assets and the Fossil Fuel
Divestment Campaign: In almost every divestment campaign we reviewed from adult
services to Darfur, from tobacco to South Africa, divestment campaigns were
successful in lobbying for restrictive legislation. Investors with over $3.4 trillion in
assets have committed to divestment, a more than 50-fold increase in the past year.

If we dont own any energy stocks, we lose our vote and our voice when it comes to the
future of these [carbon intensive] companies. State Comptroller Thomas DiNapoli

All talk and no walk lacks credibility. Phased divestment amplifies an investors voice
with existing companies because they understand there is a consequence to not
listening. Given the Funds relatively strong record of corporate engagement on climate
matters (41 instances in the past five years), a phased divestment campaign targeting
oil, gas and coal companies including utilities to disclose their business plan for a
zero-net carbon world (backed up by capital expenditures) or face the consequences
of divestment, could bear considerable positive impact in terms of corporate change
and protecting the portfolio from stranded assets.
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Summary
Climate change forces investors in the 21st Century to reconsider our understanding of
economic and investment risk. This study provides the New York Common Retirement
Fund with valuable insights that will inform our efforts to manage climate risk and build out
our portfolio in ways that protect and enhance investment returns.
-New York State Comptroller Thomas P. DiNapoli (Mercer study: Investing in a Time of
Climate Change)
Given the Funds high state of awareness regarding climate risk, its current commitment to
raise the Funds sustainable investments to 2.7% of the portfolio simply does not measure
up.
By comparison, the Dutch Pension PFZW, which is slightly larger than the Fund, has
committed to divesting from 250 fossil fuel companies with high stranded asset risks, while
reducing its carbon exposure by more than 50% by 2020 across 100% of its fixed income
and equity portfolios and quadrupling its exposure to climate solutions.
Given the systemic implications of climate risk, the Fund has a fiduciary
responsibility to take a view on how climate change will impact its allocation of
resources to different kinds of energy assets. By implementing phased divestment
backed up with targeted engagement, the Fund has an opportunity to accelerate and
get on the right side of the energy transition and the right side of history.
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Contact

Toby Heaps
Chief Executive Officer, Corporate Knights

+ 1 416 203 0066

toby@corporateknights.com

Disclaimer
The information, concepts, findings and recommendations expressed or implied in this document are based on information available at the
time of this documents preparation. Actions undertaken on the basis of information, concepts, findings and recommendations contained in
this document are at the sole risk of the reader. Corporate Knights Inc. shall have no liability whatsoever for any damages or losses arising
directly or indirectly from the use of the information, concepts, findings and recommendations contained in this document. All information is
provided as is without any warranty or condition of any kind, including as to its completeness and/or accuracy. The document may contain
inaccuracies, omissions or typographical errors.
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Appendix (methodology)
The analysis used the top 100 domestic and international equity holdings of the New York State Common Retirement
Fund as of March 31, 2012 as a proxy for its overall domestic and international equity holdings exposure.
The value of these top 100 holdings at the time was $29,871,401,702 or 45.6% of the $65,593,702,199 value of the
Fund's total domestic and international equity holdings.
Using the top 100 as a proxy for the Funds domestic and international equity holdings, divesting the most carbon
intensive favour companies providing climate solutions would have made the Fund an estimated extra $5.3 billion over
the past three years.
The analysis estimated the potential financial impact had the Fund shifted its investments from the most carbon heavy
coal and oil companies (The Carbon Underground 200 list originally pioneered by Carbon Tracker was provided by Fossil
Free Indexes, and consists of the top 100 public coal companies globally and the top 100 public oil and gas companies
globally, ranked by the potential carbon emissions content of their reported reserves) and the most coal-intensive utilities
(utilities which generate more than 30 percent of electricity from coal, provided by South Pole Group) to companies that
derive at least 20% of their revenues from environmental markets or new energy (Companies providing environmental
solutions derive at least 20% of their revenues from environmental markets or new energy as verified by FTSE
Environmental Markets or Bloomberg New Energy Finance). From there, the total returns over a three year period
starting on October 1, 2012 were calculated . This coincides with the first full quarter following 350.org founder Bill
McKibbens article in Rolling Stone, which launched the fossil fuel divestment movement.

http://decarbonizer.co/pdfs/Decarbonizer%20Methodology.pdf