NYC pension funds seek dismissal of ‘baseless’ lawsuit over fossil fuel divestment

August 16, 2023 Rob Abruzzese

City Comptroller Brad Lander. Photo courtesy of the Office of NYC Comptroller Brad Lander

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Three of New York City’s pension funds are seeking to dismiss a lawsuit that challenges their decision to divest from fossil fuel companies. The funds argue that the lawsuit, which claims they breached their fiduciary duties by divesting, is “a waste of time” and a “drain on public resources.”

The lawsuit was filed in May by four public employees, future pension beneficiaries out of more than 630,000 current and future beneficiaries, along with an Oklahoma anti-union advocacy group. It alleges that the Teachers’ Retirement System, the New York City Employees’ Retirement System and the Board of Education Retirement System acted improperly when they decided to divest from publicly-traded securities of fossil fuel reserve owners.

“The arguments in this lawsuit are a weak attempt by anti-ESG, anti-union forces to undermine the decisions by our pension system trustees to assess the very real risks of climate change to their portfolios,” said New York City Comptroller Brad Lander. “The systems are implementing ambitious and well-researched plans to address the responsibility that investment managers and portfolio companies have to assess the material risks of climate change.”

The motion for dismissal argues that the plaintiffs lack standing because the divestment decision has no impact on their retirement benefits. It also contends that the plaintiffs cannot articulate a valid claim for breach of fiduciary duty and that courts have no jurisdiction to second-guess the discretionary investment decisions of publicly accountable trustees.

The plaintiffs have made several arguments against divestment, including the false claim that the plans divested without financial analysis, the assertion that climate-related risks are unrelated to financial considerations, and the dismissal of evidence that fossil-fuel stocks have underperformed the market over the last decade.

In 2021, the three systems voted to divest from publicly-traded fossil fuel reserve owners following a lengthy fiduciary process assessing portfolio exposure to fossil fuel stranded asset risk, industry decline and other financial risks from climate change. The fossil fuel industry itself has recognized climate-related risks as material financial risks in SEC filings, acknowledging potential impacts on long-term financial performance and profitability.

Market performance supports the systems’ decisions to divest. In the five years preceding their decisions, energy stocks lost over 35% of their value, while the broader stock market increased in value by more than 50%. Through early August 2023, energy stocks have lost 1.3%, while the broader market has gained 17.2%.

Despite the claims in the lawsuit, each plaintiff admits the divestment decision will not impact their future retirement benefits. According to the funds, this indicates the plaintiffs face no injury and lack standing to sue.

The New York City Law Department and Groom Law Group represent the three systems in the litigation.

Comptroller Lander and the trustees of the five New York City pension funds stress that they are working to ensure that the funds continue to act in the best interests of the city’s public employees and retirees, even in the face of baseless challenges to their investment decisions.