Public Forum Comments

Re: Divesting the State Common Retirement Fund from Fossil Fuel Holdings
Carole Laible, Chief Executive Officer
Domini Social Investments LLC
February 29, 2016
My name is Carole Laible. I am the Chief Executive Officer of Domini Social
Investments LLC. It is an honor to be testifying today in support of the Fossil Fuel
Divestment Act. In Dominis opinion, divestment of fossil fuels by the New York State
Common Retirement Fund would be an important step toward addressing concerns about
the future financial viability of the fossil fuel industry and would make a strong statement
about the need for coordinated action to reduce the potential of widespread economic
disruption.
Domini Social Investments is an SEC-registered investment adviser specializing
exclusively in responsible investing. We manage a global family of mutual funds with
$1.5 billion in assets under management. We apply social, environmental and
governance standards to all of our investments, believing they help identify opportunities
to provide strong financial rewards while also helping to create a more just and stable
economic system.
For many years, Domini has incorporated concerns about the environmental risks
of fossil fuel production into our investment decisions. Since our inception in 1991, we
have never held coal-mining companies, in the past, we have approved few major
integrated oil companies, and we now exclude all owners and producers of oil, natural
gas or coal reserves from our funds.
Today, we would like to share with you some of our views on the unique nature
of the threat of climate change, and why we believe divestment is an appropriate response
by fiduciaries. In doing so we would like to address the financial risks of continued
investment in fossil fuels, the moral imperative for action on climate change, and the
effectiveness of divestment as a tool to prompt action on climate change.
The Financial Risks of Continued Investment in Fossil Fuels
The increasing reality of climate change attributable to the burning of fossil fuels
and the speed at which that reality is coming upon us has been well documented. The
levels of carbon dioxide in the atmosphere are now increasing rapidly and have grown
from 315 parts per million in 1960 to 402 as of January 2016. Moreover the annual

Carole Laible, Testimony, February 29, 2016

growth rate of carbon dioxide concentrations in the atmosphere is increasing, from
approximately 1% in the 1960s to approximately 2% since 2010.1
Because the oceans absorb carbon dioxide from the atmosphere, their chemical
make-up is also altering. The oceans absorb 24 million metric tons of carbon dioxide
each day, which has resulted in an overall 26% increase in the acidity of their waters
since preindustrial times. Acidification of the oceans is currently increasing at ten times
the rate of any period of time in the past 55 million years.2
Scientists believe that the increasing levels of carbon dioxide and other
greenhouse gases in the atmosphere are resulting in a warming of the Earth. Since 1901
the average temperature in the 48 contiguous United States has increased at the rate of
0.14 degrees Fahrenheit per decade. Since the 1970s this rate has increased to 0.46. Seven
of the 10 warmest years on record have occurred since 1998.3 Globally, 2015 was the
warmest year on record.4
According to the Intergovernmental Panel on Climate Change, these changes are
due to human activity and in large part due to the burning of fossil fuels. These climate
change effects have put the future of the fossil fuel industry at risk. With increasing calls
for keeping the global temperature increase at less than 2 degrees Celsius and the
commitments by 196 nations at the COP 21 meetings in Paris to reduce their carbon
emissions as soon as possible, the shift away from fossil fuels is underway.
Consequently, a significant portion of the worlds fossil fuel reserves may become
unburnablethat is to say, stranded assets. A recent background paper prepared the
Round Table on Sustainable Development at the OECD noted that Stranded assets in the
transition to a 2C compatible world are inevitable and will indeed signal that the world
economy is bifurcating from fossil fuels at an appropriate pace.5
Already, financial markets are anticipating this transition and the stocks of coal
companies have suffered accordingly. The Dow Jones Coal Index dropped 36.5 percent
1

Measurements by the National Oceanic & Atmospheric Administration, available at

http://www.esrl.noaa.gov/gmd/ccgg/trends/ Last accessed December 5, 2014.
2
See the National Oceanic & Atmospheric Administrations webpage at
http://www.pmel.noaa.gov/co2/story/New+OA+website+launched Last accessed December 5, 2014.
3
See the Environmental Protection Agencys webpage Climate Change Indicators in the United States
for further details at http://www.epa.gov/climatechange/science/indicators/weatherclimate/temperature.html Last accessed December 5, 2014. Also Karl Ritter, UN Agency Refutes Notion
that Global Warming Has Stopped Boston Globe December 4, 2014: A4.
4
See the website of the National Oceanic and Atmospheric Administrations National Centers for
Environmental Information at http://www.ncdc.noaa.gov/sotc/global/201512 Last visited February 25,
2016.
5
OECD Divestment and Stranded Assets in the Low-Carbon Transition October 28, 2015: 20. Available at
http://www.oecd.org/sdroundtable/papersandpublications/Divestment%20and%20Stranded%20Assets%20in%20the%20Lowcarbon%20Economy%2032nd%20OECD%20RTSD.pdf Last visited February 25, 2016.

Carole Laible, Testimony, February 29, 2016

in 2015 and 75 to 87 percent since before the last recession began in 2007.6 Moreover,
since November 2010, MSCI has maintained an All Country World Index excluding
companies owning oil, gas and coal reserves. As of January 2016, on an annualized
basis, this index has outperformed by 123 basis points (9.79 percent to 8.56 percent) the
MSCI ACWI, which includes the full complement of fossil fuel companies .7
For these reasons, fiduciaries should consider the implications of their fossil fuel
investments. It cannot be considered a violation of fiduciary duty to sell the shares of
companies whose assets are believed to be significantly impaired.
As the United Nations Environment Program Finance Initiative recently observed,
Failing to consider long-term investment value drivers, which include environmental,
social and governance issues, in investment practice is a failure of fiduciary duty.8
Moreover, the CFA Institutes recent study of the integration of these factors into the
investment process concluded that,
For investment professionals, a key idea in the discussion of ESG issues is
that systematically considering these issues will likely lead to more
complete investment analyses and better-informed investment decisions.9
The Moral Reasons for Addressing Climate Change
Climate change is the ultimate systemic risk. Its potential impacts will be global
and will be disproportionately afflicted on the most vulnerable members of our
civilization.
Its profound disruptions will result in the indiscriminate extinction of species.10
Ethicists have argued that humans do not have the moral right to cause massive
disruptions in the global ecosystems that put other species at risk of extinction. Moreover,
as global warming and the acidification of the oceans produce winners and losers, those
who are most vulnerable to the changes brought on climate change will be those who
have least contributed to it.11 The Intergovernmental Panel on Climate Change points out
6

Tim Mullaney The biggest energy dog bet of all, or value trap? CNBC, January 12, 2015. Available at
http://www.cnbc.com/2015/01/12/has-war-on-coal-unearthed-the-ultimate-value-stocks.html Last
visited February 25, 2016.
7
See MSCI AWCI Ex Fossil Fuels Factsheet. Available at
http://www.unepfi.org/fileadmin/documents/fiduciary_duty_21st_century.pdf
https://www.msci.com/resources/factsheets/index_fact_sheet/msci-acwi-ex-fossil-fuels-index-gbpgross.pdf Last visited February 25, 2016.
8
st
United Nations Financial Initiative, Fiduciary Duty in the 21 Century. September 2015: 9. Available at
http://www.unepfi.org/fileadmin/documents/fiduciary_duty_21st_century.pdf Last visited February 25,
2016.
9
CFA Institute, Environmental, Social and Governance Issues in Investing: A Guide for Investment
Professionals November 2015: 1.
10
See Elizabeth Kolbert, The Sixth Extinction: An Unnatural History (New York: Henry Holt & Co.) 2014.
11
See McKenzie Funk, Windfall: The Booming Business of Global Warming (New York: Penguin Press)
2014.

Carole Laible, Testimony, February 29, 2016

that People who are socially, economically, culturally, politically, institutionally, or
otherwise marginalized are especially vulnerable to climate change and also to some
adaptation and mitigation responses.12
Sociologist C. Wright Mills believed that we are not destined by inevitable fate,
but rather, by individual actions and that although each of these actions may seem of
small consequence, in total, they result in a way no man intended. It is this unintended
consequence that divestment seeks to prevent.
In addition, one must consider Mills philosophy that As the circle of those who
decide is narrowed, as the means of decision are centralized and the consequences of
decisions become enormous, then the course of great events often rests upon the
decisions of determinable circles. 13
It is with this lens that we, asset owners and managers, must acknowledge we are
very much a part of this determinable circle. We have the power to influence the course
of these great events and must uphold our responsibility to prevent catastrophic damage
to our world.
The Effectiveness of Divestment in Addressing Climate Change
Among the most powerful arguments for the effectiveness of divestment
campaigns is the promotion of the public debate and resulting influence on public policy.
This was particularly true in the South Africa divestment campaign of the 1970s and
1980s. The short-term goal was to improve corporations race relations under apartheid,
but its ultimate goal was the orderly dismantling of the apartheid legal system itself. The
debates that this divestment provoked was particularly high profile, receiving wide press
coverage, and decisions to divest contributed to a general global pressure upon the South
African government to reform. It is the role of orderly debate that leads to change, despite
entrenched interests or long-standing opposition, that is one of divestments greatest
virtues.
Conclusion
Investors are not simply passive actors in our financial systemeach investment
decision plays a critical capital allocation role and we should be mindful of their
implications. We are future makers and should invest accordingly.
New York State has been a leader in shareholder engagement for decades. It
recognizes that it can and should exercise significant influence. The Act before us today
would allow the State to build on its impressive record of leadership in the following
manner:

12

Op. cit. (2014): 11.

C. Wright Mills, The Power Elite (Oxford University Press, 1956), p. 21.

13

Carole Laible, Testimony, February 29, 2016

1. Permits the State to raise its voice and express an even stronger commitment to
mitigating the risks of extreme climate change, one of the most difficult issues of our
time.
2. Should help shield the Common Retirement Fund from the risk that substantial
portions of fossil fuel companies reserves will become stranded.
3. The Acts time frame, requiring divestment by 2020, provides the State with the
opportunity to continue a program of intensive engagement with oil and gas companies to
conform their business strategies to a two degree Celsius mandate.
In conclusion, we consider the adoption of the Fossil Fuel Divestment Act
requiring divestment of the Common Retirement Fund from fossil fuel holdings by 2020
to be crucial and urgent.