Pensions, climate change and politics converged when New York Mayor Bill de Blasio and city Comptroller Scott Stringer announced a two-tiered assault on big oil companies over climate change.
Their lawsuit, filed Tuesday night in the U.S. District Court for the Southern District of New York, targeted five companies for damages related to climate-related costs. It specified no damage, but de Blasio estimated it would be “in the billions,” if successful.
De Blasio and Stringer will also ask the trustees of the city’s five pension funds, valued at a combined $189 billion, to divest the roughly $5 billion it invests in fossil-fuel companies.
The defendants are ExxonMobil Corp., BP plc, ConocoPhillips, Royal Dutch Shell plc and Chevron Corp.
The mayor and comptroller compare their actions against the fossil fuel business to the cultural and political shift against tobacco usage and tobacco makers.
The lawsuit comes as the city is still recovering from the effects of Hurricane Sandy in October 2012, which killed 44 New Yorkers and caused $19 billion of damage within hours.
Nationally, 2017 was the costliest year on record for U.S. natural disasters, with the National Oceanic and Atmospheric Administration estimating the damage at $306 billion. Disasters included a hurricane in south Texas, wildfires and now mudslides in California, and prolonged power outages in Puerto Rico after Hurricane Maria.
De Blasio called Puerto Rico “a place that is almost like the sixth borough to us.”
Wednesday’s news conference at the Manhattan Youth Downtown Community Center in Tribeca – flooded with 20 feet of salt water during Hurricane Sandy in 2012 -- had the feel of a gospel-like pep rally with frequent shouts of “amen” from applauding environmentalists.
Reporters quickly referenced the landmark deal in November 1998, in which five major tobacco companies agreed to pay out $246 billion to the 50 states under what is still the largest litigation settlement in the U.S.
De Blasio eagerly played the tobacco card.
“I think the tobacco analogy is important,” the mayor said. “It did take a while for sure, but there was tremendous material positive impact from those lawsuits. There was real damages paid, and those were used to have a very positive impact on public health.
“I also think everything is connected. The tobacco lawsuits were crucial to changing the public’s understanding about tobacco, and one of the great things my predecessor [Michael Bloomberg] did here with the smoking ban in a number of public areas that we built on – that’s directly related to the culture change and the attitude change that those lawsuits helped to foster.”
De Blasio hopes other cities and states will join in.
City Corporation Counsel Zach Carter, downplayed tobacco as a parallel legal strategy, while acknowledging the length of the case could be similar.
“I don’t think of it as a parallel,” said Carter. “A fact of this kind of litigation is [that] there will be fierce resistance to this lawsuit, and it’s going to take a while for it to be resolved.
“The theory of this lawsuit is it exploits our nuisance laws, and that both in terms of public and private nuisance we believe that’s a cause of action that has – that gives up certain strategic advantage in litigation.”
The city already has a $20 billion resiliency plan under way. “We know the need is much greater than that,” said de Blasio. “So that would be the focus of the damage payments we receive.”
Damages, if the city wins, could include clawback and anticipated future costs.
According to Howard Cure, director of municipal bond research for Evercore Wealth Management, the big oil and tobacco lawsuits are different.
“In the tobacco case, you had most state attorneys general coordinating their efforts and negotiating collectively against the tobacco companies,” said Cure. “I think having individual cities combating the fossil fuel industry is less effective.”
A more effective parallel, according to Cure, would be what the city and many other government entities did in the 1980s in combating apartheid in South Africa by divesting their pension portfolio of companies that did business there.
“Ultimately, this put pressure on Washington to place economic sanctions on the country with the House and the Senate overriding President Reagan’s veto,” said Cure.
Anthony Figliola, vice president of Empire Government Strategies in Uniondale, N.Y., said de Blasio overplayed a political hand to further his national profile.
“It’s a sad commentary that the city would choose to spend its limited resources litigating a political battle that will most likely lead to nowhere, when the homeless are in desperate need of help and the city badly deserves more affordable housing,” he said.
Mineola, N.Y., attorney and St. John’s University law professor Anthony Sabino called the lawsuit a waste of time.
“One, these companies operate legally. Two, to the extent you believe in global warming, it is a national, indeed international issue, and New York City cannot solve the problem, assuming there is one,” said Sabino.
“Three, and probably most important, there are federal laws that deal with such matters on a national level. That’s where the answer lies, as recent Supreme Court cases [Michigan v. EPA, for one] demonstrate.”
Stringer on Thursday expects to submit a joint resolution with de Blasio to pension fund trustees to begin analyzing ways to divest from fossil fuel owners “in a responsible way that is fully consistent with fiduciary obligations.”
Each of the five retirement funds has its own board of trustees that works with Stringer's Bureau of Asset Management and the board’s consultants, and decides on the funds’ asset allocations based on factors including economic risk, return, performance, and beneficiary distributions.
Overall, the city’s five main pension funds hold roughly $5 billion in the securities of over 190 fossil fuel companies. The two largest, the New York City Employees’ Retirement System and the Teachers’ Retirement System of the City of New York, account for two-thirds of the proposal and are on board with the lawsuit.
The other funds are the New York City Police Pension Fund, the New York City Fire Department Pension Fund, and the New York City Board of Education Retirement System.
“Anything that we do – any action we take, any proposal we make just like the proposal the mayor and I are going to make tomorrow has to be brought before the trustees and has to be vetted and discussed,” said Stringer. “We are examining the goal of divestment within a five-year timeline.
“In the last four years we have divested our holdings from coal and we went through a process. We divested from private prisons and went through a process, so we have some experience in this.”
Stringer's position contrasts with that of state Comptroller Thomas DiNapoli, who a week earlier said the public pension funds he controls have “no plans” to divest. DiNapoli cited his fiduciary responsibilities to pension holders.
A report by the free-market oriented think tank American Council for Capital Formation accused Stringer's administration of overemphasizing on social agenda. Today, said the report, four of every five taxpayer-dollars collected by New York City’s personal income tax are spent paying down the city’s public pension fund system’s liabilities, a 567% hike over the past 15 years.
The funds stand at an average funded ratio of 62%, less than the national average of 72.2%.
"Mr. Stringer and his team have continued to prioritize projects and investments that align with their personal political agendas, often at the expense of generating returns," said the report.
The importance of the fossil fuel industry to many states’ economies could inhibit a tobacco-style class action, said Cure.
“I am always somewhat cautious of divesting a pension portfolio from a large segment of the economy. I think you run the risk of limiting investment options with the potential of undermining your returns."