Pension ESG, a new battleground for US culture wars.

Can you sue your pension fund for investing with due consideration to ESG principles?

That’s the question being argued in the courts between a group of members of the New York City defined benefit pension fund and their pension scheme. Here’s reporting from US Lawyers Cohen & Buckmann

According to the participants, energy company investments “shunned” by the Plans during the 2022 divestment period delivered exceptional returns outperforming the S&P 500 index by an order of magnitude of 58%.  The complaint also argued that in contrast to the trustees in this case, the trustees of two other New York City pension funds rejected proposals to divest from fossil fuel-related holdings, specifically because doing so would conflict with their fiduciary obligations. In addition, the complaint emphasized that public plans in California , Maine , Seattle,  and  Colorado  have refused to divest from fossil fuels as inconsistent with fiduciary duties.

The participants asked the New York Supreme Court to declare that the Plans and their respective Boards of Trustees have breached  their fiduciary duties  to Plan participants through their divestment actions, and to order the Plans and Trustees to rescind their divestment policies and remediate the harm caused by those policies to the participants  and retirees.

The answer looks like being “no” for three reasons

  1. The benefit due to the members is going to be same however the fund is invested
  2. There are sufficient  “facts” to support the case
  3. The courts shouldn’t intervene by being more expert than expsets (the scheme’s fiduciaries)

The case seems entirely counter-intuitive to a European liberal mindset. You can roughly translate from the American legalese

Plaintiffs’ three causes of action all involve a supposed breach of fiduciary duty, premised on the allegation that the plans violated their duties of loyalty and due care by ceasing their investments in fossil fuels

Is there a wider duty of care in this context , to the environment in which the pensioners will spend their later days and does this trump the financial arguments put forward by the plaintiffs  that their fund would be more prudently  invested in fossil fuels. ?

Does it make a difference that the potential financial loss from investing in risky fossil fuels fall to the sponsor rather than the member? Can the member be the sponsor’s agent in suing for a healthier return rather than a healthier planet?

And is it any business of members or the courts, what decision experts take on our behalf. Unless they are acting illegally, can a court decide on speculative investment decisions

The Politicisation of ESG investment

This most recent court case is being played out against a backdrop of controversy over the behaviour of these New York funds

In 2021 three of New York City’s largest employee pension funds representing civil servants, teachers, and school administrators announced they were divesting from securities tied to fossil fuel companies.

With a combined value of 9 billion, representing 70% of the city’s pension assets, the move was then one of the largest fossil fuel divestments in the world.

Under the resolution, the pensions vowed phase out fossil fuel investments over five years. NYC Mayor Bill de Blasio said then

“Fossil fuels are not only bad for our planet and our frontline communities, they are a bad investment,”

But in May of 2023, three New York City pension funds were sued for allegedly breaching their fiduciary duty by selling billions of dollars of fossil-fuel assets.

The plaintiffs, represented by Donald Trump’s former Labor Secretary Eugene Scalia, claim the retirement plans’ decision to divest roughly $4 billion in fossil fuel investments is

“a misguided and ineffectual gesture to address climate change,”

according to the complaint filed in New York state court. They said the plans have

“a duty to act prudently in making investment decisions.”

What makes this even more complicated is that the sponsor, rather than objecting to the pension fund’s actions , fully supports them.

Does this have application for the UK and Europe?

The legal details will be of interest to lawyers, but the ethical and fiduciary arguments are of interest to us all. Jeff Mamorsky, who is a stalwart of our AgeWage and Pension PlayPen linked in group, lays out the arguments in more detail here.

The New York City  pension funds have now filed a motion to dismiss. Not surprisingly, the pension funds have argued in their motion that dismissal is appropriate because the plaintiffs face no injury and lack standing and that the plaintiffs have not stated a cause of action.

Is Jeff’s reading of the situation correct, are the pension funds right and would the reading of the situation be any different in Europe or the UK?

It would be interesting to hear your views .

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Pension ESG, a new battleground for US culture wars.

  1. ESG has not become politicised. ESG was political from the beginning. Fink is the culprit. Meanwhile, when I was in a fiduciary role, I had no trouble at all justifying a decision (of which I was a part) to make or retain investments in companies or asset classes (or rather, not excluding them) in so called fossil fuels. Yes, some younger beneficiaries were tearful, but I satisfied myself very easily that I was acting in their interests. I used to amuse myself by telling them that I thought a number of tobacco companies looked very attractive for sustainable returns. Trigger alert!

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