As activists push NJ to divest from fossil fuels, state turns to green-energy fund

Pension fund managers make first large-scale investment in renewable energy
Credit: Samuel Faber from Pixabay
State pension officials are emphasizing more sustainable investment practices.

New Jersey’s public-worker pension system is committing up to $100 million in assets to a private-equity fund that will invest solely in renewable-energy infrastructure projects around the globe.

The investment in the Stonepeak Global Renewables Fund is the pension system’s first large-scale foray into backing renewable-energy production.

The big commitment to renewable energy comes amid a broader push by state pension officials to emphasize more sustainable investment practices. And they have suggested additional investments that meet the same goals are regularly reviewed and could be coming in the future.

But the new stake in renewable-energy generation also comes as pension officials have been facing pressure from environmental activists to be far more aggressive about how assets they manage are invested in the energy sector.

Dumping fossil fuels

In response to growing concerns about global climate change and its impact on New Jersey and its economy, activists want to see nothing less than a full divestment of all stakes in fossil-fuel companies. They’ve been mounting a lengthy campaign to pressure New Jersey’s fund managers that shows no signs of letting up, even as the pension system is launching the new investment in renewable energy.

“It’s good to hear that you’re looking at renewable investments … but it is not the same thing as divesting from fossil fuel,” said Tina Weishaus, a spokeswoman for the DivestNJ coalition, during a recent meeting of the New Jersey State Investment Council.

New Jersey’s $74 billion public-employee pension system covers the retirements of nearly 800,000 current and retired workers. Pension funds are managed on a regular basis by the Department of Treasury’s Division of Investment under policies set by state law and by the investment council.

During the early 2000s, rules for investing state pension funds were changed so assets could be committed to so-called alternative investments like hedge funds and private equity that fall outside the traditional blend of stocks and bonds. That action to diversify the investment portfolio was taken in response to a major stockmarket downturn that hit New Jersey’s pension system particularly hard.

Such investments now make up more than 30% of the state pension system’s overall portfolio.

No stranger to Stonepeak

As part of the alternative-investment strategy, the pension system is committing up to $100 million in assets to the Stonepeak renewable-energy fund. That comes several years after the pension system made an up to $125 million commitment to another investment fund managed by Stonepeak that has focused primarily on backing promising infrastructure projects.

The firm, which has offices in New York, Texas and Hong Kong, has so far generated double-digit returns for each of its prior funds, according to data included in a memo from the Division of Investment that was reviewed by members of the investment council during the recent public meeting.

The firm’s new fund is specifically aimed at supporting renewable-energy infrastructure, generation and storage, with a focus on projects in North America and Asia.

“The demand for renewable energy is supported by both increasing overall demand for power and by the transition from conventional to renewable power generation,” the memo said as it made the case for launching the new investment.

“Governments across the fund’s target markets have instituted mandates/policies to transition from conventional power generation to renewable energy,” the memo said.

But even as pension-fund managers are moving forward with the potentially promising renewable-energy investment, they continue to hear from Weishaus and other activists who want the pension system to make other changes that go beyond a new emphasis on sustainable investing.

Concerns about climate change

A widespread push to divest all fossil-fuel investments held by major institutional investors such as pension funds and university endowments has been picking up steam nationally in recent years amid growing concerns about climate change and the role that fossil fuels have played in rising temperatures and sea levels. Proponents of divestment also argue that such investments are no longer profitable, long-term strategies.

Last year, at the urging of activists in New Jersey, state pension officials conducted an in-house review of what could happen if the state decided to go “fossil-fuel free.”

The review acknowledged that “business risk may support a transition to renewable energy over a long-term investment horizon.” But it also determined that even as renewable energy sources and electric vehicles grow in popularity, demand for fossil fuels isn’t projected to peak until “around the year 2040,” suggesting fossil-fuel investments would likely continue to be profitable.

Since then, pension officials have sought to engage more regularly with the executives of companies that pension funds are invested in to encourage more disclosure of climate-change policies and greenhouse-gas and emissions reports. They’ve also adopted a formal “environmental, social and governance,” or ESG, policy that is now being used whenever new investments are considered.

But they haven’t initiated a large-scale divestment effort.

Jennifer Sciortino, a spokeswoman for the Department of Treasury, noted pension-fund managers have a sworn fiduciary responsibility to maximize returns for beneficiaries. She also said the Division of Investment and the investment council believe “the best financial outcomes will result from active engagement on climate-change issues.”

“Divestment, in contrast, eliminates the division’s influence as a shareholder and, consequently, its ability to effect positive change that may lead to favorable investment returns,” Sciortino said. “The transition away from fossil fuels is, and will continue to be, driven by complex issues including the rate of technological innovation and the regulatory environment.”

Pressing for full divestment

Governors and lawmakers have at times stepped in to legally prohibit certain types of investments to make sure state pension funds aren’t being used to support activities that have been deemed unsavory. They include banning all stakes in businesses with ties to Iran and Sudan’s Khartoum regime, and more recently, companies that have decided to boycott Israel to protest its treatment of Palestinians.

There is legislation that has been introduced in both houses of the Democratic-controlled Legislature that would prohibit pension-fund assets from being invested in 200 of the largest publicly traded fossil-fuel companies, including those that sell oil and gas. But it is stalled in both the Assembly and the Senate.

As Weishaus pressed again for full divestment during the recent investment council meeting, she cited a report published by the state Department of Environmental Protection earlier this summer that suggested climate change poses a direct threat to industries like tourism and agriculture, which are major sectors of New Jersey’s economy.

She said the DEP report should “frighten every New Jersey resident.”

“The report lays out in detail the damage that ongoing use of fossil fuel — the main driver of climate change — will do to the economy of New Jersey,” Weishaus said.

“Fossil fuels that cause climate change are no longer acceptable investments,” she went on to say.

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