The people running New Jersey’s pension-fund investments have changed polices and strategies with an eye toward a more sustainable future amid climate change.
But that’s not enough for activists who urged them Wednesday to follow the lead of other institutions that have decided to cut all ties to the fossil fuel industry.
The latest calls for full divestment of the state pension system’s fossil-fuel holdings were aired during a virtual meeting of the New Jersey State Investment Council. It was the first meeting since Rutgers University leaders decided earlier this month that the school’s endowment will dump all of its stakes in fossil fuel within a decade. That move had divestment advocates celebrating it as a major win.
Yamika Ketu, a Rutgers graduate, was among those who praised her university’s action as she also urged state pension officials yesterday to follow suit.
“As a young person in my 20s, who feels very strongly about the world I’m inheriting, I think it’s imperative to do whatever we can to limit the impacts of climate change,” Ketu said.
Safeguarding the future
“My generation is already experiencing the adverse effects of global warming in the form of extreme wildfires, flooding, hurricanes (and) droughts. We can’t guarantee a safe future for generations to come unless we take every action necessary to mitigate climate change,” she went on to say.
“The evidence for divestment is there, it’s just now a matter of taking the action,” Ketu said.
But for now, state pension officials have signaled they are sticking to their current approach to managing public worker pension-fund investments, which involves balancing strict fiduciary responsibilities with the increasing concerns about climate change.
While that approach stops well short of divestment, it has in recent months involved, among other efforts, a ramping-up of investments in renewable energy production; the launching of a long-term review of risks to the pension system posed by climate change; and the flexing of institutional muscle to require companies to improve their disclosure of things like greenhouse gas and emissions reports.
“We’ve been active, and we’re going to continue to be active, and we’re going to continue to plan and give the council the best advice that we can to make those longer-term decisions,” said Adam Liebtag, the panel’s vice chair, after listening to Ketu and others make the case for divestment.
Legislative ban bogged down
Environmental activists organized under the DivestNJ Coalition have in recent years repeatedly called on the state pension system to take action to shed investments in companies that have links to the fossil-fuel industry. State lawmakers have also been urged by environmentalists to enact a statutory prohibition on investments in fossil-fuel companies in response to concerns about climate change and how it has impacted New Jersey as a coastal state. However, despite having dozens of sponsors, a bill seeking to enact such a ban remains stalled in the Democratic-controlled Legislature.
The coalition’s push for divestment mimics other efforts that have been launched nationwide as part of a broader movement to leverage the influence of major institutional investors both to pull existing investments in fossil-fuel companies and to launch new investments in clean-energy production and other more sustainable activities.
For example, New York City Mayor Bill de Blasio announced in 2018 a goal of divesting his city’s pension funds of fossil-fuel investments by 2022. And earlier this week, de Blasio said New York City would also be significantly increasing pension-fund investments in climate-change solutions over the next three years.
The bill approved earlier this month by the Rutgers University board of governors and board of trustees calls for, among other things, the university’s nearly $1.6 billion endowment to shed all fossil fuel investments within the next 10 years.
Rutgers is also promising not to make any new investments in the fossil-fuel industry and to reinvest funds in more environmentally friendly funds and indices.
University President Jonathan Holloway said in a statement that the divestment action “aligns with Rutgers’ mission to advance public health and social justice.”
“While the university has taken steps recently to limit investments in this area, approving a policy of divestment from fossil fuels is a significant expression of the values of our institution and our broader community,” he said.
New Jersey’s roughly $85 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 the New Jersey State Investment Council.
Tasked with maximizing returns
Pension-fund managers have a fiduciary responsibility to maximize returns for beneficiaries in what are generally long-term investments.
Rutgers professor David Hughes was among those who pressed state pension officials to move ahead with their own divestment plan during yesterday’s meeting.
“The science — much of it generated by Rutgers — is clear and unambiguous on this point,” said Hughes, who was among those to successfully lobby the university to approve divestment.
“We know we have to virtually stop burning oil, gas and coal,” he said.
In 2018, New Jersey pension-system officials announced during a public meeting the results of an in-house study of what could happen if the pension system decided to go “fossil-fuel free.”
That 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. Pension officials also indicated at the time that current fossil-fuel investments may involve a long-term commitment of funds that are not typically easy to redirect rapidly.
Changing course due to climate change
During a meeting earlier this year, members of the investment council heard about some of the ways the Division of Investment has been changing course in response to concerns about climate change.
Some of the state’s new investment policies include advocating as a major institutional investor for more disclosure of climate-related risk and bringing on board a new portfolio manager to oversee “sustainable investing.”
The Division of Investment also announced at the same time that it would be advancing efforts to conduct more “ESG” reviews, which focus on the environmental, social and governance impacts of pension-fund investments. A major review of the overall, long-term risk that climate change poses to the pension system is also underway.
Liebtag pointed to those efforts and others as he addressed the issue during yesterday’s meeting.
“I can tell you that fossil fuels and climate change is probably the number one issue that has taken the most time from an ESG standpoint, and our ESG committee and council members continue to take it seriously,” Liebtag said. Speaking after the meeting ended, Treasury spokeswoman Jennifer Sciortino said the Division of Investment believes “the impact of climate change introduces investment risks and opportunities that should be incorporated into long-term investment decision-making.”
“Accordingly, the DOI has developed a robust approach to address the global economy’s transition away from fossil fuels and towards renewable energy,” Sciortino said.
“In exercising its fiduciary responsibilities, the Division expects that the Pension Fund’s exposure to fossil fuel investments will decline over time at a pace that exceeds the global economy’s transition from fossil fuels to renewables,” she went on to say.
“The division invests in anticipation of future changes as it seeks to realize attractive, risk-adjusted investment returns on behalf of more than 800,000 pension fund participants,” she said.
The environmental activists signaled yesterday that they appreciate all of those efforts. But that also didn’t stop them from airing another round of calls for immediate divestment.
“The urgency of the climate crisis is clear,” said Greg Gorman, conservation chair for the New Jersey Sierra Club. “We need to act now, and quickly.”