The New York State Common Retirement Fund recently announced it will restrict investment in eight energy companies, including ExxonMobilXOM -0.5%, following a review of the companies’ “transition readiness” to a low-carbon economy.

Overseeing the $250 billion New York State Common Retirement Fund for public employees, State Comptroller Thomas P. DiNapoli defended the move, reiterating his broader ambitions to keep climate change “at the forefront” of the state pension fund’s investment risk mitigation efforts.

DiNapoli wants us to think he’s doing so solely to protect pension fund members, not out of concern for shareholder investment returns.

But Exxon just unveiled its $36 billion profit for 2023, surpassing expectations and outpacing its four energy supermajor counterparts. It also distributed the highest cash returns to shareholders last year among these companies, maintaining over 40 years of consecutive annual dividend increases, demonstrating Exxon’s unwavering commitment to consistently delivering growing returns to its shareholders.

That begs the question: Why would DiNapoli divest in one of the world’s most attractive and successful energy companies?

In short, Exxon is not ready to address the risks of climate change in DiNapoli’s opinion.

While Dinapoli’s action is suspect in light of his sole duty to make investments that will lead to returns that can fund the retirement of public employees in New York, he also neglects Exxon’s important role in decarbonization.

Exxon’s CEO Darren Woods recently laid out how the company will help advance the energy transition by leveraging its core capability of “creating technologies that transform molecules” to low-carbon energy that meets society’s need for affordable and abundant energy. Currently, the company is focused on creating and deploying innovative technologies like carbon capture utilization and storage, biofuels, and hydrogen.

To meet these goals, Exxon plans to allocate over $20 billion between 2022 and 2027 towards emission reduction initiatives, a figure on par with commitments made by the Common Retirement Fund. Further, the company has halved methane emissions from its operated assets since 2016, and has entered into agreements with other firms to capture and sequester 5 million tons of carbon emissions annually—equivalent to the CO2 emissions offset by all-electric vehicles on U.S. roads today.

Given Exxon’s superior shareholder value generation compared to its counterparts and its substantial investment in emission mitigation efforts matching New York’s pension fund, DiNapoli appears to have targeted the company to further his political career instead of protecting New York’s pensioners.

While publicly taking credit for selling actively managed Exxon shares and emphasizing divestment benefits for its members, DiNapoli is still investing in Exxon as part of its broader index strategy.

This combination of actions to virtue-signal ultimately allows DiNapoli to have his cake and eat it too.

Assessing companies’ “transition-readiness” is a slippery slope, especially if state pension funds begin subjectively determining the criteria for such evaluations with no standard setting or accountability mechanisms.

While DiNapoli’s decision will ultimately benefit New York’s pension plan members by retaining Exxon shares, this “naming and shaming” to encourage divestment presents many challenges for long-term energy investment opportunities and beyond.

For instance, companies may relocate their operations abroad to evade scrutiny, ultimately impacting local economies and potentially leading to job losses or investment activity could be directed away from private markets, hindering innovation and growth in sectors that could otherwise benefit from increased capital.

In short, it is egregious that DiNapoli publicly denounces successful energy companies for not being “climate-ready” but ultimately selects to benefit from Exxon shares at the same time. This hypocrisy threatens essential energy investments at a pivotal point, as Exxon brings its significant resources and expertise to provide the energy the world needs while reducing and eliminating carbon emissions associated with that production.

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