In May, three NYC pension funds were sued by anti-ESG investors over their decision to divest from certain fossil fuels companies. The investors argued that the funds breached fiduciary duties when considering climate-related risks in investment decision-making – that such considerations do not further financial performance. Recently, the funds filed a motion to dismiss the case, taking the position their divestment decisions were made on sound financial research.
Ropes & Gray discuss the motion in a recent memo:
“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 memo goes on to say that the fiduciary duty issue may not be adjudicated in this case because other defenses from the pension funds may end the lawsuit before that issue can be resolved. This case is one of the first concrete attempts by the anti-ESG movement to bring ESG into the courtroom and will be closely watched by groups looking to bring similar cases. An early dismissal could spell the end of the breach of fiduciary duty theory. If that happens, we may see future anti-ESG litigation pivot to different arguments.
