For years, anti-ESG targeted retirement funds that consider ESG factors in their investment decisions. Anti-ESG plaintiffs argue that these funds place ESG priorities before financial returns. This, they allege, constitutes a breach of the plan managers’ fiduciary duties. Now the shoe is on the other foot. A recently filed class action argues that Cushman & Wakefield violated its fiduciary duties by investing employee retirement savings in the Westwood Fund. The Westwood Fund intentionally doesn’t consider ESG factors in its decision-making. Plaintiffs argue that the omission of ESG risks resulted in larger risk exposure and diminished returns. The lawsuit argues that Cushman & Wakefield violated their fiduciary duty by:
- “Selecting the Westwood Fund without considering the fund’s historical underperformance and excessively high fees; the availability of reasonably-priced, better performing alternatives; or the fund’s unreasonable aggregation of climate-related financial risks in its portfolio;
- Failing to monitor the Plan investment options and remove the Westwood Fund by, among other things: (i) failing to avoid or mitigate conflicts of interest related to Fidelity’s fee interest in the Westwood Fund; (ii) failing to adequately consider the Westwood Fund’s continued underperformance, unreasonable expense ratio, and continued concentration of climate-related risks in its portfolio; (iii) failing to remove the Westwood Fund from the Plan despite the fact that it was selected based on an imprudent and disloyal process which was not in line with industry standard risk management practices or the Company’s peers; (iv) failing to adequately consider whethercontinuing to invest Plan assets in the Westwood Fund constituted party-in- interest transactions with Fidelity;
- Failing to monitor the Westwood Fund in conformance with the IPS’sspecifications by failing to adequately consider pertinent factors about the Westwood Fund’s business, investment process, risk management,performance and/or, fees.”
I’ve long argued that capitulating to anti-ESG exposes companies to legal risks from pro-ESG litigants. This is a perfect example of that concept. The Plaintiffs in this case took anti-ESG’s arguments and inverted them. Anti-ESG investing cases largely went nowhere, except the American Airlines case, which itself resulted in no monetary damages. However, pro-ESG litigants have facts on their side. If they can prove that Cushman & Wakefield violated its fiduciary duty, then we may see similar cases follow.
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