Internet Explorer 11 is not supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

The Potential Impact of New Jersey’s Pension Fund Divestment

If passed, a bill would divest the state’s pension fund from the 200 largest publicly traded fossil fuel companies no more than two years from the time the bill is enacted. The pension fund is valued at $92.9 billion.

(TNS) — New Jersey would join a growing list of states to divest its pension fund from fossil fuel companies if a long-stalled bill crosses the finish line in Trenton this fall.

The legislation (A1733), now in its fourth iteration after it was first introduced in 2017, has gained new momentum in recent weeks as the fight against climate change intensifies nationwide. It will be considered Thursday by the state Senate’s environment committee.

Maine enacted a similar law last year, ordering public funds to curtail investments in coal, petroleum, natural gas and other related products by 2026. New York said its $226 billion pension fund will look to divest significantly from fossil fuel stocks by 2025.

New Jersey’s move would be stricter, requiring the state’s public worker pension fund to divest from the 200 largest publicly traded fossil fuel companies no more than two years from the time the bill is enacted.

As of May 31, the Garden State’s pension fund — which supports the retirement of about 800,000 active and retired state and local government workers — was valued at $92.9 billion, according to the state Treasury Department’s Division of Investment.

It is unclear exactly how much money the fund currently has invested in fossil fuels. The division has yet to compile that data because the divestment bill is still pending, a Treasury spokesperson said.

One thing is clear, however: The fund is heavily invested in some of the world’s largest oil companies, and rising oil prices have helped to stem losses in 2022 as high inflation and aggressive rate hikes continue to roil global markets.

The pension fund lost more than 6 percent of its total market value through the first five months of the year, according to the most recent report from the state’s investment division. Real asset holdings — which can include investments in fossil fuel assets and natural resources like oil — delivered a return of 7.5 percent during the same timeframe.

As of June 30, Chevron, BP and Conoco Phillips accounted for more than $348 million of the fund’s publicly traded investment holdings, according to data from the division. And it had at least $237 million invested in Exxon Mobil, one of the five largest oil companies in the world.

New Jersey environmentalist Tina Weishaus, co-chair of DivestNJ, a statewide coalition that has campaigned for divestment since 2018, said the burning of fossil fuels needs to end and “divesting from these companies is one piece of the puzzle.”

“Why should tax dollars support these companies that are profiteering and care nothing about the outcome of their product of fossil fuels?” Weishaus asked during a recent interview with NJ Advance Media.

Stalled Divestment Bill Finds New Life

DivestNJ worked with state Sen. Bob Smith, D- Middlesex, to help craft the divestment legislation, which picked up steam in August during a joint legislative committee hearing on climate change in Toms River.

Weishaus told lawmakers during the two-hour hearing that the burning of fossil fuels is creating climate impacts like extreme heat, floods, wildfires and rising seas that “threatens to destroy people’s lives,” and she warned of the disastrous effects climate change could have on the global economy.

Smith, a main sponsor of the divestment bill, said during the hearing that passing the measure would be “a signal to the world that we’ve got to change our ways.”

But some business groups, including the New Jersey Chamber of Commerce, are opposed to the measure and say it could harm New Jersey businesses and the state economy.

Michael Egenton, executive vice president of government relations for the New Jersey Chamber of Commerce, told the committee in August that oil and gas companies are already working to become more eco-friendly.

The industry continues to implement measures to reduce greenhouse gas emissions, according to Egenton, “while ensuring affordable and reliable energy” to meet the growing energy demands of the state and the nation.

“As these discussions take place over this legislation, let us not omit that many of our member companies provide jobs and renewables to New Jersey’s economy, and they have state-of-the-art initiatives that are in place to go green,” Egenton said.

He pointed to Exxon Mobil’s Global Technology Center located in Clinton, stating that nearly 800 scientists, engineers and technicians there are “working to develop the next generation of scalable lower carbon energy solutions that address the hardest to decarbonize sectors.”

Ed Wengryn, a research associate with New Jersey Farm Bureau, said the non-profit organization did not have a strong position on the bill but was wary of divesting from companies that are making investments in renewable energy.

But Weishaus said these investments are only happening on a small scale and she believes divesting from the companies couldn’t happen fast enough.

“We need you to work to pass this bill now,” she told state officials last month, “because continuing with business as usual is no longer an option for the rest of us in New Jersey.”

An Uncertain Future

During a recent meeting of New Jersey’s State Investment Council, which oversees the investment of pension funds, Jill Aquino, a former nurse in Sussex County, said divesting was “not only a necessity for human health, this is a necessity for planetary health.”

In an interview with NJ Advance Media, she said there were various examples of how the negative impact of climate change found its way into her career as a nurse, including gas-powered school buses often idling in front of school buildings and students suffering from a gamut of health issues.

“What I saw in the 16 and a half years was the abundant amount of children in my care who had asthma issues, who had severe allergies that required EpiPens, who had diabetes, who had high blood pressure, who had high cholesterol, who had elevated BMI,” Aquino said. “I feel strongly that, and research has shown us, that the connection is to the unhealthiness of our planet. Fossil fuels are fueling our climate crisis.”

Climate change could reduce global economic output by 18 percent in the next 30 years if no mitigating action is taken, according to a 2021 report from Swiss Re, a global insurance and risk-management firm based in Zurich, Switzerland.

Pension funds and other institutional investors are “ideally positioned to play a strong role” in accelerating climate action, Swiss Re said in its report, but the transition to a low-carbon economy poses its own financial risks.

“Climate change is a systemic risk and can only be addressed globally,” Swiss Re Chief Economist Jérôme Haegeli said in a statement announcing the firm’s report. “Only if public and private sectors pull together will the transition to a low-carbon economy be possible.”

Danielle Currie, a spokeswoman for the state Treasury Department, said the investment division has developed a framework to evaluate the risks of climate change on New Jersey’s pension fund. And, while oil prices may be providing a lift today, a worsening long-term outlook has already prompted state Treasury officials to reevaluate the fund’s fossil fuel investments.

New Jersey’s Division of Investment has a fiduciary responsibility to its public worker beneficiaries, and climate change introduces “risks and opportunities that should be incorporated into long-term investment decision-making,” Currie said.

“In exercising its fiduciary responsibilities,” she continued, “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.”

The division, through proxy voting and direct engagement, has pushed for better financial disclosure of climate-related risks, Currie said. It also has joined investor coalitions and has advocated for standardized reporting under the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosure.

This isn’t the first time New Jersey is attempting to use the financial weight of its public worker pension fund to deliver a political message or advocate for social change.

The state Treasury Department has struggled to make headway on a separate bill enacted in March that requires the fund to divest from all holdings in Russia and Belarus. State leaders quickly passed that measure after Russian President Vladimir Putin invaded Ukraine in February.

Officials initially sought an outside vendor to help with the process but didn’t get enough responses, spokeswoman Jennifer Sciortino recently told NJ Advance Media. And market closures in Russia have made it difficult for fund managers to unload equity investments in the country.

The Russia divestment law was just the latest in a long list of statutes that have required New Jersey to cut financial ties with specific industries, companies or foreign governments.

In its latest annual report, the Division of Investment said it maintains a list of companies ineligible for investment under a Sudan divestiture law enacted in 2005, an Iran divestiture law from 2007 and a law enacted in 2016 that requires divestment of companies boycotting Israel.

Last year, Jersey City officials passed a resolution urging Democratic Gov. Phil Murphy’s administration to fully divest the state pension plan from fossil fuel positions, and for the city’s municipal pension board to do the same. Rutgers University also announced last March it would divest its $1.6 billion endowment from fossil fuels over the next 10 years.

If committees in both houses of the Legislature approve the measure, it would have to pass both the Assembly and Senate be signed by Murphy before it becomes law.

©2022 Advance Local Media LLC. Distributed by Tribune Content Agency, LLC.
Special Projects