This story was produced in partnership with Capital & Main, a non-profit news outlet based in Los Angeles, and WNYC, New York Public Radio.

New York State’s former top pension investment officer was appointed to the board of a natural gas conglomerate after the pension system bought up the company’s bonds, rejected demands to divest from fossil fuels and supported multimillion-dollar pay packages for the company’s executives after the firm’s stock price had dropped.



Vicki Fuller was appointed as a director of The Williams Companies on July 31st — the same week she left her position as the chief investment officer of the New York State Common Retirement Fund.



The CIO job — appointed by State Comptroller Thomas DiNapoli — is considered one of the world’s most powerful financial positions, directing $207 billion of investments for a system responsible for safeguarding the retirement savings of more than a million current and former state employees and their beneficiaries. Fuller will be granted $275,000 worth of salary and company stock every year for the part-time position serving on Williams’ board.



The move comes during an increasingly bitter policy debate between the comptroller’s office and environmental groups over whether the pension fund should divest itself from fossil fuel companies that contribute to climate change. In correspondence with DiNapoli over the last two months, major environmental groups have asked whether Fuller’s new position is a reward for her and DiNapoli’s ongoing opposition to selling off the fund’s fossil fuel holdings.



As September’s Climate Week commences in New York, those same pro-divestment groups on Monday sent a letter to the state ethics commission requesting a formal investigation of a comptroller’s office that has already seen one leader sent to prison in an influence-peddling scandal, and another bond investment official recently convicted on bribery charges.



“Ms. Fuller’s appointment calls into question the integrity of the management of the New York State Common Retirement Funds by New York State Comptroller Tom DiNapoli,” wrote 30 groups to state ethics officials. “It is outrageous to us that a person can one day be CIO of the New York state pension funds and the next day take a well-compensated appointment as a board member of the corporation into which she oversaw – or even directed – large investments while helping to shield the company from an adverse divestment decision by the funds.”



DiNapoli’s office says they’ve already reviewed the matter and found nothing wrong. In an August letter to environmental groups, his counsel, Nancy Groenwegen, wrote: “We are not aware of any facts to support a conclusion that Ms. Fuller’s post-[Common Retirement Fund] appointment as an independent director on the Williams board creates a conflict of interest, nor are we aware of any decision under the State’s ethics laws by the Joint Commission on Public Ethics or its predecessor agencies that would prohibit her from accepting such an appointment.”



The controversy combines ongoing concerns about Albany corruption with the simmering debate over whether Democrats like DiNapoli are following through on their promises to do all they can to combat climate change. While DiNapoli escaped a primary challenge in his current reelection bid, environmental groups furious with his opposition to divestment are now pressuring him as he heads into a general election campaign against Republican investment banker Jonathan Trichter.



“This creates red flags because the CIO job is the most powerful appointed financial position in the state of New York,” said former Deputy New York Comptroller Thomas Sanzillo, who served under DiNapoli. “There needs to be an independent review because there is a perception of a conflict of interest.”

The decision to launch an investigation will be up to the Joint Commission on Public Ethics, which is largely comprised of commissioners appointed by a governor who himself has ties to Williams. WNYC previously reported that a Cuomo-led political group raked in $100,000 from Williams earlier this year, and Cuomo’s own re-election campaign this year is run by a registered lobbyist for Williams who is on leave from her firm. At the same time, Williams is asking the Cuomo administration to approve a controversial pipeline that environmentalists say threatens the state’s waterways.

Comptroller’s Office Cites Internal Review



As comptroller, DiNapoli serves as the sole trustee of the state’s pension system. He appointed Fuller CIO in 2012. During Fuller’s six-year tenure in that $365,000-a-year job, the pension fund more than doubled its total stock and bond holdings in Williams. New York’s state pension fund is now one of Williams’ 100 largest institutional shareholders, according to Nasdaq records.



Last year, as a major shareholder, the pension system voted to support an executive compensation program that paid the company’s top officials $62 million between 2014 and 2016 — a period that saw the firm’s stock price plummet nearly 20 percent. This year, nine days after Fuller left her state job, the comptroller’s office voted against the company’s executive compensation program.



Under Fuller, the pension system in early 2015 added $110 million worth of Williams bonds to the state’s portfolio. That same year, Moody’s changed Williams’ financial outlook to “negative” in a report warning that its bonds could be particularly risky investments.



The company and its affiliates, wrote Moody’s, were “weakly positioned for their respective [bond] ratings owing to their high financial leverage and the execution risk on growth projects.”



The specific bonds New York purchased were downgraded in 2016, but have since returned to investment grade, according to the comptroller’s office.



DiNapoli, a former assemblyman from Long Island, took over the office in 2007 following the resignation of then-Comptroller Alan Hevesi in a fraud scandal. Later, Hevesi also pleaded guilty in a pay-to-play scandal in which he steered $250 million of pension fund investments to a private equity fund after receiving nearly $1 million in gifts from the founder of the fund.



In 2009, DiNapoli issued an executive order that created a new code of conduct for the comptroller’s office. It established wide-reaching policies governing conflicts of interest and financial transparency. In 2016, those policies were lauded by an outside contractor that was hired by the comptroller’s office to review its ethics rules. However, DiNapoli’s updated code of conduct still did not place any limitations on the type of employment investment officers can seek after leaving the comptroller’s office or any other post-employment ethics guidelines.



While environmental groups are calling for an independent investigation of Fuller’s move, the comptroller’s office says it has already conducted its own internal review, according to the letter from DiNapoli’s counsel.



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In the lead-up to Fuller announcing her plan to retire from her government job, Fuller was told of an ethics advisory that requires state officials to recuse themselves from matters involving companies offering them post-government employment, and to wait 30 days from the recusal before discussing that employment.



Fuller told the comptroller’s office “that the company had no matters pending” before the pension fund, and DiNapoli’s office said it “confirmed that there were no investment matters involving the Williams Companies pending during the relevant time frame of May-July 2018.”



During that time, however, state officials had the ongoing power to buy or sell the pension fund’s holdings in Williams — and the pension fund considered resolutions for Williams’ May 10th shareholder meeting. Additionally, Williams was also at that time asking for input from the pension fund and other stockholders on a proposed merger and financial reorganization of the company.



For its part, Williams said Fuller’s appointment to the company’s board had nothing to do with decisions at the pension fund.



“Ms. Fuller came to the company’s attention through a third-party recruitment firm that was engaged to assist the company in replacing a retiring director,” said Williams spokesperson Keith Isbell. “She did not meet with any members of the company’s board or management until after the May 2018 announcement of her retirement from the NYS Common Retirement Fund.”



Isbell said Fuller will not be expected to interact with the New York state pension fund in her role on Williams’ board. Both Fuller and DiNapoli declined interview requests for this story.



A Larger Debate Over Divestment



The battle over Fuller’s move underscores not only ongoing concerns about the revolving door between business and government in Albany, but also environmentalists’ demands for investors across the globe to sell off their holdings in fossil fuel companies. Already, institutions representing more than $6 trillion of capital have committed to divest, and in New York City, Mayor Bill de Blasio and city Comptroller Scott Stringer have supported divestment and announced new investments in renewable energy.



More than six percent — or roughly $13 billion — of New York’s state pension fund is in fossil fuel-related investments, according to a report by the activist group Fossil Free. While DiNapoli was running for reelection the year before the state bought Williams’ bonds, he said he would consider following environmental groups’ demands to divest the fund from fossil fuel companies.



However, DiNapoli has since refused to divest, even as New York City pension funds divest and state legislators and the governor have demanded the state follow suit. In 2016 — less than two years before being appointed to Williams’ board — Fuller led the fight against legislation that would require divestment. She argued that shareholders should instead engage with companies to show them that climate change is a significant risk to their business model.



“We do actively engage our portfolio companies, but we’re patient,” Fuller said at an October 2016 roundtable hosted by state senators Liz Krueger and Brad Hoylman at Baruch College. “So if we think a particular issue requires our attention we will engage the company, write a letter, propose resolutions, vote against board members. And if we are not successful the first time we keep coming back. That approach has borne fruit for us. Some people don’t believe in engagement, but I can tell you the proof is what we’ve been able to accomplish.”



To support this assertion, the comptroller’s office has touted DiNapoli-led shareholder resolutions prompting fossil fuel companies to more thoroughly disclose environmental information. Those include a resolution that led to an agreement with Cabot Oil and Gas requiring the company to disclose its policies on using toxic chemicals for fracking; a resolution compelling ExxonMobil to conduct a study of its impact on climate change; and resolutions prompting DTE Energy, Dominion Energy and Southwestern Energy to detail how they would comply with the 2015 Paris Agreement that committed nations across the globe to carbon emission reductions.



Groups like 350.org counter that the most powerful way to reduce fossil fuel development and reduce carbon emissions is for large institutions to divest from oil and gas companies, thereby denying them investment capital.



“Engagement with the fossil fuel producers isn’t working – they’re determined to stick to their business model,” 350.org founder Bill McKibben said in 2015, when New York lawmakers first introduced legislation that would require the pension fund to divest its fossil fuel holdings.



With DiNapoli still opposing divestment three years later, McKibben in May 2018 authored a Rolling Stone magazine essay that said: “Because of (DiNapoli’s) high-profile insistence on ‘engagement’ with the industry, he’s become a stand-in for a thousand other political ‘leaders’ who can’t quite summon the nerve necessary to break with the fossil-fuel industry, even when science and economics are making it clear where the future must lie. It’s so much easier to keep doing what you’ve always done – but at this point inertia is the planet’s most powerful enemy, and DiNapoli is threatening to become inertia’s avatar.”



DiNapoli Touts Work on Climate Change, But Critic Says He’s Being “Used.”



DiNapoli has continued to stake out a public profile as a crusader against climate change. He has said he views climate change as a “material risk for our portfolio” and his office has shifted some of the pension fund’s investments into companies that reduce their carbon footprint. Earlier this month, the pension fund was praised by the Asset Owners Disclosure Project for its work addressing climate risk.



“I continue to speak out when the Fund’s portfolio companies fail to take the steps necessary to adapt to the changing world,” DiNapoli said at the time. “Those of us who are working to make the Paris Agreement a reality may take separate avenues, but we share a common goal — to help build the growing low carbon economy. I am proud that the Fund is part of that worldwide effort.”

The office does not appear to have used that kind of leverage against Williams during Fuller’s tenure. And more generally, some of the fund’s highest profile moves against the industry have not always generated significant results. For example, after DiNapoli made headlines forging the deal with ExxonMobil to publish a study on how climate change could affect its future business, the company used the study to simply reiterate its commitment to a business based on fossil fuel profits.



Meanwhile, the fossil fuel industry has aggressively used DiNapoli to deflect increasing pressure from the divestment movement. In just the last year, the Independent Petroleum Association of America published five separate blog posts and two newspaper essays citing DiNapoli’s opposition to divestment — and embrace of shareholder engagement — as a reason other public officials across the country should reject environmentalists’ demands.



“With the retirement money of New York’s working families on the line, let’s hope that the State Legislature supports Comptroller DiNapoli and pushes back against fossil fuel divestment,” said one of the association’s essays.



“DiNapoli as the sole person in charge of the pension fund’s investment strategy has made it clear that he has no plans to divest,” said another. “Let’s hope the fiduciaries of other pensions across the country follow suit.”



Sanzillo, the former deputy comptroller, said it all adds up to “a rather sophisticated game” in which DiNapoli has become a shield for the industry.



“Why has DiNapoli allowed himself to be used by the industry as their poster child for responsible shareholder engagement?” he asked. “The industry has basically said [DiNapoli] is the greatest thing in the world, and the reason they said that is because he pulled punches on the shareholder work and he is not being forceful….It looks cynical. It looks like he was saying he was pressuring the companies, and then he backed off, and that’s a game that cynical shareholders do play, and there’s something wrong here.”



DiNapoli has rejected suggestions that his anti-divestment strategy is a deliberate defense of the oil and gas industry. Instead, he has asserted that ownership stakes in fossil fuel companies give him necessary leverage over those firms, and he has also insisted that he is fulfilling his fiduciary obligations to generate the largest possible investment returns for pensioners.



“The New York State Common Retirement Fund and the State Comptroller are not being used by anyone,” said DiNapoli’s spokesperson, Jennifer Freeman. “The State Comptroller, as the trustee of the (pension fund), is acting as a prudent investor, committed to ensuring the New York State and Local Retirement System is able to pay retirement income to state and local workers. The Fund’s interest is in protecting its long-term value so public workers have peace of mind that their retirement funds are growing and the cost to taxpayers is minimized.”



In 2017, a study from the Suffolk County Association of Municipal Employees found that the state could forfeit up to $2.8 billion of investment returns if it divests from fossil fuels.



But those projections — and DiNapoli’s underlying argument — have been questioned.



A May report by Corporate Knights found that New York’s pension fund would have generated an additional $15 billion of returns had it sold off its fossil fuel holdings and reinvested them in renewable energy. A July report from the Institute for Energy Economics and Financial Analysis found that in the past three to five years, “Global stock indexes without fossil fuel holdings have outperformed otherwise identical indexes that include fossil fuel companies.”



“Investors with long-term horizons should avoid oil and chemical stocks on investment grounds. They face a sustained headwind,” wrote Jeremy Grantham, the legendary asset manager who co-founded the investment firm GMO. “Ethical arguments for divestments are simply not necessary. They are a pure bonus.”



Critics of the oil and gas industry have asserted that corporations are not properly accounting for their exposure to climate-related losses. Last week, U.S. Senator Elizabeth Warren introduced legislation that would require more climate-related disclosures. At the same time, a new book by journalist Bethany McLean finds that natural gas investments are on shakier financial footing than their quarterly financial reports suggest.



Sanzillo said that if New York state’s pension fund embraces divestment, it can play a pivotal role in the climate change fight because of its sheer size.



“This is the third-largest fund in the United States,” he said. “If the comptroller tells his money managers that we need a portfolio that is fossil-free, every large money manager in the world will have to adapt.



“It tells JP Morgan, Morgan Stanley and all the other major financial advisers that this is the product institutional investors want, and you better come up with it, or you aren’t going to have customers any more,” Sanzillo said.





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