NYC pension plans strike back against anti-ESG activist suit over fossil fuel divestment

In one of the first private lawsuits to attack ESG-related investing practices, three New York City pension plans have filed papers staunchly defending their 2021 decisions to divest certain holdings in fossil fuel companies.

The litigation brings into sharp focus a core legal theory underpinning the broad attacks being leveled regularly against ESG investing practices by red state officials, Congressional Republicans and other critics: that consideration of climate-related risks in investment decision-making constitutes a breach of fiduciary duty because such considerations serve only to further a social agenda, not financial returns.

In their motion, the NYC pension plans put the lie to this premise, pointing to public evidence (allegedly ignored by the plaintiffs) linking climate-related risks to energy company performance – risks routinely acknowledged by the companies themselves in financial disclosures. 

The key fiduciary duty issue may or may not be reached in the NYC litigation, as the pensions plans have another important defense that may block the plaintiffs’ claims – that as members of defined benefit plans, they will upon retirement receive fixed payments each month regardless of the value of the plan at the time. Thus, the plans argued that the plan members face no possible harm from the trustees’ investment decisions and therefore lack legal standing.

In any event, this litigation bears careful attention as an early test case of the fiduciary duty theory espoused by many anti-ESG activists. Indeed, plaintiffs’ lead counsel is Eugene Scalia, who championed anti-ESG rules under ERISA while serving as Secretary of Labor in the Trump administration.