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New York’s Fracking Investments

A recent Buffalo News article about New York State Comptroller Thomas DiNapoli’s shareholder activism through the state’s pension fund mentions his interactions with the natural gas industry. According to the Buffalo News, DiNapoli

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A recent Buffalo News article about New York State Comptroller Thomas DiNapoli’s shareholder activism through the state’s pension fund mentions his interactions with the natural gas industry. According to the Buffalo News, DiNapoli “has been pressing natural gas companies involved in hydrofracturing to provide him with risks of their drilling practices, the kinds of chemicals used and to take into account community opposition to drilling plans.” DiNapoli told the News he would continue this activism “regardless of what may still come to pass” as Cuomo poises himself to lift the fracking moratorium.

While the State’s considerable investment in fracking companies puts the comptroller in a good position to “pull corporate strings” with these companies, these investments amount to New York State’s use of public pension money to bankroll the risky and unpopular practice. Fracking, which in its high-volume and horizontal form is under a moratorium in New York, presents a significant risk to air and water, and has been questioned as a speculative bubble by insiders and energy analysts. Further, as pointed out in the New York Times, the Supreme Court’s 2010 decision in Citizens United v. F.E.C., which guaranteed corporations’ right to make electoral expenditures with campaign treasuries (substantially financed by New York’s and other public pension funds), raises the concern that public employees are being forced to fund pro-fracking lobbying via mandatory contributions to the Common Retirement Fund deducted from their paychecks.

New York’s fracking investment

Thomas DiNapoli is the sole trustee of New York’s Common Retirement Fund, which is valued at $149.5 billion. In May 2011, Gannett reported that the state pension fund had over $1 billion invested in fracking companies. Taking corporate debt, short-term investments and the Common Retirement Fund’s equity in 70 fracking companies into account, New York actually has invested $2.6 billion in fracking companies, now worth more than $6 billion – 4% of the fund’s total value. Among these investments are the State’s 17,116,424 shares of ExxonMobil, the number one gas driller in the country, with a market value of $1.4 billion. ExxonMobil is the Common Retirement fund’s largest investment; Apple, Chevron, General Electric, IBM, Microsoft, JP Morgan Chase, AT&T, Proctor & Gamble, and Wells Fargo stocks round out the top ten.

Chevron, the number nine gas driller in America, is the fund’s second largest fracking holding – the fund’s 7,622,345 shares are worth almost $819 million. New York also has:

A list of these holdings, sorted by the cost of the investment, is available on LittleSis.

In addition to equity, the Common Retirement Fund owns $39 billion worth of corporate and government bonds and short-term investments. $278 million of corporate debt is in the gas drilling industry. New York has bonds valued at $55.3 million alone in Devon Energy, $49.6 million in BHP Billiton, $42.4 million in Halliburton, $40.8 million in Apache Corporation, and $25.6 million in Chevron. Short-term investments include nearly $225 million in Chevron, $37.5 million in Consolidated Natural Gas (now Dominion Resources), and $26.8 million in Canadian Natural Resources.

All told, New York’s pension fund investments in frackers total $6,609,413,930.

DiNapoli’s shareholder activism

As the manager of the Common Retirement Fund’s almost $150 billion, Thomas DiNapoli has a lot of power to make demands of the corporations in which the fund invests. In its article, the Buffalo News called DiNapoli “a player on Wall Street.” In addition to taking Mohawk Industries and Lifepoint Hospitals to task over their workplace safety and discrimination policies respectively, DiNapoli has used his position to advocate at shareholder meetings of New York’s fracking interests.

In 2010, in response to allegations of egregious environmental practices by Occidental Petroleum in the Peruvian Amazon, DiNapoli authored and pushed a resolution to add an environmental expert to the corporation’s board of directors. That resolution was defeated. He joined 39 other investors this year calling for Chevron to settle its dispute with inhabitants of Ecuador’s rainforest. An Ecuadoran court rendered an $18 billion judgment against the Chevron in a case the corporation inherited when it bought Texaco in 2001. The Common Retirement Fund sponsored a similar resolution to Occidental’s – the measure was defeated with 78.5% of shareholders voting against.

DiNapoli’s 2011 resolution “seeking greater disclosure of the risks associated with hydraulic fracturing” received 43.7% of the vote at Carrizo Oil’s shareholder meeting. The Common Retirement Fund holds $12 million of Carrizo stock. DiNapoli filed similar resolutions with Chesapeake Energy, Hess, Range Resources, XTO Energy, and Cabot Oil & Gas in 2010. According to the Office of the State Comptroller, the resolutions called for the boards of the energy companies to:

[S]ummarize for shareholders: the environmental impact of their unconventional natural gas operations; potential policies for the company to adopt, above and beyond regulatory requirements, to reduce or eliminate hazards to air, water, and soil quality from operations including those from hydraulic fracturing; and, other information regarding the scale, impacts of potential material risks, short or long term, to the company’s finances or operations, due to environmental concerns regarding fracturing.

Cabot, of which New York owns about $36 million in stock, attempted to block the resolution from a vote, though the SEC overruled them. Even so, that resolution was defeated at Cabot as well as atChesapeake, and it does not appear to have come up for a vote at Hess, Range, and XTO.

This year, DiNapoli called for other shareholders in embattled fracker Chesapeake Energy to reject two directors, V. Burns Hargis and Richard K. Davidson, up for election. Those directors were overwhelmingly rejected.

Publicly-funded corporate campaign contributions?

While the Common Retirement Fund’s investments allow the comptroller a voice in the boardroom, DiNapoli’s environmental proposals have been largely rejected and the public funds continue to finance the companies’ activities. Though he did divest the state pension fund from interests tied to Iran and Sudan, DiNapoli rejected the idea of pulling money from disreputable companies. “We want to be in the marketplace, and we want to make money,” he told the Buffalo News.

The money DiNapoli wants to keep in the marketplace, however, comes partly from mandatory employee contributions. These mandatory contributions are used to capitalize the companies the Common Retirement Fund invests in, either through stock purchases or corporate bonds. Companies use this money to finance their activities, including, since Citizens United v. F.E.C., speech in the form of political spending.  According to Harvard Law School professor Benjamin I. Sachs, this is unconstitutional. “The consequence of Citizens United is perverse,” he wrote in the New York Times, “requiring public employees to finance corporate electoral spending amounts to compelled political speech and association, something the First Amendment flatly forbids.”

Since 2007, fracking companies the New York State Common Retirement Fund holds equity in have spent $175,610.40 to influence elections in New York State. This does not include electoral contributions from the companies’ various political action committees or the companies’ $6.1 million spent lobbying people already elected (including $1,762,552 from Chesapeake Energy alone). It also does not include campaign contributions from individuals, such as executives and board members, connected to the companies.

The most generous political contributor was Constellation Energy (a part of Exelon as of March 2012), which donated $81,723.70 to political campaigns or PACs (and spent $597,731 on lobbying) since fracking has become an issue in New York. The Common Retirement Fund owns $34 million in Constellation stock. ExxonMobil, the largest equity investment in the pension fund’s portfolio, gave $17,340.80 in the past five years. Again, this is in addition to the $821,574 ExxonMobil spent on lobbying in New York as well as contributions from the company’s PAC.

Other frackers that New York has investments with who made contributions are:

These figures are all from campaign finance reports filed with the New York State Board of Elections.

Since the Supreme Court decision in Citizens United v. F.E.C., corporations can contribute money to influence elections through super PACs that can accept unlimited donations from corporations, unions, and not-for-profits as well as individuals. A corporation can hide its expenditures by donating money to a non-profit that does not have to disclose the sources of its funding, which may then contribute money to a super PAC affiliated with, though legally prohibited from “coordinating with”, a particular candidate.

This is especially distressing around an issue like fracking where, according to a Siena College poll, only 37% of New Yorkers support the practice, yet tens of thousands of public employees are unwittingly bankrolling the corporations’ attempts to lift the fracking moratorium. While the New York State Common Retirement Fund’s position with these companies allows the comptroller to pursue better corporate practices, divestment has been proposed by those who find the gas companies’ activities untenable. Climate activist Bill McKibben called for college endowments and pension funds to divest from fossil fuel companies who “guarantee [students and pensioners] won’t have much of a planet” in the future.

The serious environmental risks fracking poses, as well as the practice’s rapidly declining profitability and the distinct possibility of it being an artificially-inflated economic bubble, raise serious questions about New York’s gas company holdings. Is New York putting pension funds – and the environment – at risk by investing in fracking?