The New York state pension fund has announced its decision to divest some of its investments in oil companies, such as Exxon Mobil, due to their lack of preparation for the energy transition. While New York may not be a major shareholder in these companies, this move reflects a growing trend among institutional investors to withdraw from the oil and gas sector. Similar steps have been taken by other states, including Maine, which passed legislation in 2021 requiring its pensions to divest from fossil fuels.
This shift in investor behavior could potentially have significant consequences for oil companies, as a reduced inflow of institutional money may impact their valuations. In contrast to U.S. institutional investors who have largely maintained their holdings in fossil fuel stocks, European funds have been more proactive in divesting from these industries. Consequently, European oil companies often trade at lower valuations compared to their American counterparts.
Despite these developments, investors currently do not appear concerned. On Thursday, Exxon’s stock rose by 2.9% alongside increasing oil prices.
New York State Comptroller Tom DiNapoli has framed the divestment as a financially savvy decision that aligns with his fiduciary duty to maximize investment returns. He stated, “Climate change is an increasingly urgent risk facing all investors, and I am determined to protect the state’s pension fund by keeping it at the forefront of efforts to mitigate risks to our investments.”
While the actual impact of the divestment is expected to be limited, New York plans to sell approximately $26.8 million worth of investments from the affected companies, with $25 million coming from Exxon. However, the state will still maintain around $500 million worth of passive investments in Exxon. A spokesperson for the comptroller explained that fully removing these passive investments is currently impractical and could harm the pension fund’s short-term performance. It is worth noting that Exxon has a market cap of $410 billion.
In addition to Exxon Mobil, the other companies subject to divestment include Guanghui Energy Company Ltd., Echo Energy PLC, IOG PLC, Oil and Natural Gas Corporation Ltd, Delek Group Ltd., Dana Gas Co, and Unit Corp. As of now, none of these companies have responded to requests for comment.
Exxon’s Commitment to Low Carbon Businesses
Exxon has announced its plans to invest a significant amount of money in low carbon businesses over the next few years. The company aims to allocate at least $20 billion between 2022 and 2027, with approximately half of that going towards decarbonizing its own operations. According to spokesperson Nicole Morales, this investment is crucial as it positions Exxon as a leader in the industry’s energy transition.
While these low-carbon investments represent only 10% of Exxon’s total capital expenditures, they surpass the commitments made by some other U.S. oil companies, including Chevron. However, despite Exxon’s efforts, a review conducted by DiNapoli’s office suggests that the company has not made deep enough commitments to clean energy. Mark Johnson, a spokesman for DiNapoli, noted that Exxon falls behind its peers in terms of diversification and capital investments in transition strategies.
DiNapoli’s approach to evaluating energy producers is distinct. Rather than a broad divestment, he is willing to continue investing in fossil fuel companies that demonstrate concrete plans to transition away from dirty fuels. The review process has occurred in stages, with divestments in 21 oil and gas producers announced in 2022, including major players such as Chesapeake Energy. The most recent review focused on integrated energy companies like Exxon, which engage in various operations from oil production to refinery operation.
Regarding the status of other integrated oil-and-gas companies like Chevron, Johnson emphasized that meeting minimum standards does not guarantee complete clearance, as the assessment remains ongoing.
DiNapoli’s upcoming focus is on utilities, indicating a continued dedication to pushing for cleaner energy practices.