New York State pension fund pulls out of oilsands

The third-largest public pension plan in the United States said Monday it would divest from some of Canada’s largest oilpatch companies, arguing they failed to show they are “prepared for the transition to a low-carbon economy.”

In response, Calgary-based Cenovus, one of the firms targeted for divestment by the New York State Common Retirement Fund, repeated its 2020 pledge to reach what it considers “net-zero emissions” by 2050, and said it expects to set “new near-term targets” as it works through its takeover of Husky Energy.

New York State comptroller Thomas DiNapoli, the trustee of the US$247-billion fund, made the announcement following a review of climate-related investment risks. DiNapoli said the fund will sell off over US$7 million in securities connected to oilsands companies and ban future direct purchases and actively managed investments.

“As nations around the world become increasingly serious about addressing the threat of climate change and as market forces drive a low-carbon economic transition, we need to make sure our investments line up with this reality,” DiNapoli said in a statement.

Scientists say global fossil fuel production must decline by six per cent per year for the next decade to avoid more extreme climate change. Governments have so far planned to go in the opposite direction, producing more coal, oil and natural gas in excess of Paris Agreement temperature limits.

In addition to Cenovus and Husky, DiNapoli said the fund had determined that Imperial Oil, Canadian Natural Resources, MEG Energy, Athabasca Oil and Japan Petroleum Exploration had all “failed to show they are transitioning out of oilsands production.”

DiNapoli said oilsands companies are “responsible for large greenhouse gas emissions” and that oilsands production is “more costly and carbon-intensive” than other forms of crude.

The sector has been Canada’s fastest-growing source of emissions, and most of the crude that comes out of the oilpatch is a heavy type of oil that the Canada Energy Regulator considers to be of “lower quality” than light crudes because it is costlier to refine, and results in fewer end-products, like gasoline.

DiNapoli’s announcement is the latest of several in recent years where large funds or financial institutions have turned their back on Canada’s oilpatch over concerns it is misaligned with low-carbon transition goals.

Norway’s municipal employees pension fund sold off its stakes in oilsands companies in 2019, for example, and Norway's sovereign wealth fund followed with its own oilpatch divestments in 2020.

As well, one of the world’s largest insurance companies, Zurich Insurance Group, restricted investments in 2019, and then dropped its coverage of the Trans Mountain pipeline the next year.

Richard Brooks, the climate finance director for Stand.earth, said DiNapoli’s announcement marked the first time a state pension fund in North America was actively divesting from the majority of its oilsands holdings. Brooks said he felt it would lead to similar moves from other such funds.

“What we’re seeing here is a really big state pension fund, one of the largest in the United States, with vast holdings, quite a bit of influence, and at the centre of Wall Street,” he said in an interview.

“With New York moving, a lot of attention I think is going to be on this announcement, and we will begin to see other dominoes begin to tumble as a result of this.”

The Canadian Association of Petroleum Producers, the industry group that represents oil and gas producers including several that were targeted for divestment, did not immediately respond to a request for comment.

Reg Curren, senior adviser at Cenovus, said the company announced in 2020 it would reach “net-zero emissions by 2050, which reflects our commitment to doing our part to address Canada's Paris commitments, along with the rest of society.”

“That ambition remains following our transaction with Husky Energy late last year,” he said. “We're now analyzing the combined company to set new near-term targets that align with our revised long-term business plan as we integrate Cenovus and Husky following the close of the transaction.”

Morgan Stanley analysts have said Cenovus could generate $3.5 billion this year, bouncing back from a loss last year, according to a report in Reuters, but faces pressure to invest in low-carbon transition projects.

A Royal Bank of Canada report in November 2020 said the oil and gas industry “likely won’t meaningfully reduce” its carbon pollution this decade without more government funding. The federal government has already offered hundreds of millions of dollars to oil and gas firms to adopt “greener technologies.”

New York State’s decision comes after New York City announced in January 2018 that it would be divesting city funds from fossil fuel reserve owners. In January, the city’s largest pension funds also voted to divest from about US$4 billion in fossil fuel-related securities.

Carl Meyer / Local Journalism Initiative / Canada’s National Observer