New York State’s largest public pension fund is restricting its investments in ExxonMobil after determining the oil company is failing to prepare for a low-carbon world. The announcement falls far short of pledging a full divestment from Exxon, however, and the fund will continue to hold hundreds of millions of dollars worth of shares in other major oil companies.

The decision could deal another blow to Exxon’s reputation, climate advocates say, as the company tries to convince investors and the public it is diversifying into low-carbon technologies. But the news came as a disappointment for many activists who had hoped New York would go further.

“New Yorkers demand full divestment from Exxon and the other oil and gas majors,” said Ruth Foster with the Divest NY coalition, in a statement. “The future of our climate and the hard earned pension dollars of the fund members can’t be risked with continued investments in fossil fuels.” 

New York State Comptroller Thomas DiNapoli, who controls the state’s common retirement fund, said Thursday his office would restrict investment in Exxon and sell about $25 million in securities. But the fund will maintain roughly $500 million worth of Exxon shares that it manages “passively” through index funds that invest across the market. DiNapoli announced no restrictions on any of the other major multinational oil firms.

Mark Johnson, a spokesperson for DiNapoli, said despite the risk to the portfolio posed by investments in Exxon, “for the time being we’ve determined that fully removing them is impractical and could hurt the fund’s long-term performance.”

Johnson declined to say what criteria his office had set for the oil companies, but said Exxon was “substantially behind their peers,” for example by failing to set a goal for reducing so-called “scope 3” emissions, which measure the pollution released by cars, trucks and other consumers of the company’s products.

Johnson added that divestment is “part of our strategy, but it’s just a part. We’re doing a lot more.”

Exxon did not immediately respond to a request for comment.

Many of those who had pushed the state to divest pointed out that other funds in Europe and elsewhere have managed to sell all their fossil fuel stocks. State Sen. Liz Krueger noted that asset management firms have creative passive indexes that exclude fossil fuel companies.

“I do think that would have been the best solution,” said Krueger, a Democrat from Manhattan who withdrew legislation in 2020 that would have compelled DiNapoli’s office to fully divest from fossil fuels after the comptroller agreed to launch his own review.

As part of its announcement on Thursday, DiNapoli’s office also said it had met a goal of investing $20 billion in climate solutions such as renewable energy and green infrastructure and would aim to reach $40 billion by 2035.

Krueger praised those investments and said the most important question is whether the world can muster sufficient financing for clean energy. “If we do, and we speed up the transition from an oil and gas economy to a green economy, this divestment question becomes moot,” Krueger added. “No one will want to invest in oil and gas.”

The state comptroller’s review of major oil and gas companies was the latest in a sector-by-sector analysis of fossil fuel companies launched in December 2020. Previous rounds have led to restrictions on investments in 50 companies that extract coal, oil sands and shale oil and gas. While advocates have praised DiNapoli’s leadership for launching the review, some institutions have gone farther. New York City announced in 2021 that it had divested its fossil fuel holdings, worth about $3 billion. Last week, a major Dutch pension fund said it had ended its investments in all the major oil and gas companies.

The full divestment by these pension funds undermined the comptroller’s argument that its fiduciary duty limited its ability to withdraw from passively managed funds, said Richard Brooks, climate finance director for Stand.earth, an advocacy group that has promoted divestment.

DiNapoli also said Thursday that his office would move more money into climate index funds and would no longer invest in private equity funds “focused on the extraction or production of oil, gas and coal,” steps that Brooks praised.

The pension fund holds about $260 billion in assets, making it one of the largest state pension funds in the country. Johnson, the comptroller’s spokesperson, said the fund’s exposure to fossil fuels had fallen to $3.5 billion, from $4.69 billion in December 2022. Recent filings show that in addition to its Exxon holdings, the fund has about $388 million worth of Chevron stock and $50 million invested in BP.

Despite the relatively small amount of stock being sold, Brooks said the announcement could make it easier for other pension funds to take similar steps, citing efforts underway in California, Maine, Oregon and Vermont.

Worldwide, more than 1,600 faith-based groups, universities, philanthropies and other institutions have announced at least partial divestment from fossil fuels, according to Stand.earth. Brooks argued that these decisions are already having an impact on fossil fuel companies by shrinking their pool of possible investors. New York’s decision, he said, will increase the pressure.

“It should influence people’s choices when they’re making decisions on who to invest in or not invest in,” Brooks said, adding that DiNapoli’s office is well respected. “I think him finding that Exxon presents a risk to the fund and a financial risk sends a message and a signal to the marketplace.”