NYC public employees sue public pensions over ESG investment practices

A group of New York workers who may receive retirement benefits are suing three New York City retirement systems for allegedly violating their fiduciary duties to their beneficiaries by making investing decisions with a mind toward non-financial factors.

The complaint contends that "The New York City Employees’ Retirement System ('NYCERS'), the Teachers’ Retirement System of the City of New York ('TRS'), and the Board of Education Retirement System of the City of New York ('BERS') (collectively, the 'Defendants') are obligated to administer their respective Qualified Pension Plans (the 'Plans') solely in the interests of the Plans’ participants and beneficiaries, and for the exclusive purpose of providing retirement benefits."

"But instead of honoring that obligation, Defendants have breached their fiduciary duties and abused their control over plan assets by divesting the Plans of approximately four billion dollars of holdings in companies involved in the extraction of fossil fuels, in a misguided and ineffectual gesture to address climate change," the plaintiffs claim. "This unlawful decision to elevate unrelated policy goals over the financial health of the Plans is flatly inconsistent with the Defendants’ fiduciary responsibilities, and jeopardizes the retirement security of Plan participants and beneficiaries. It must be enjoined."

The practice of Environmental, Social, and Corporate Governance (ESG) investigating involves an asset manager tailoring the manner in which they invest to pay heed toward such factors instead of solely concerning themselves with the profitability of those investments. Critics have contended that the practice may constitute a breach of fiduciary duty to investors.

The plaintiffs include future beneficiaries of the retirement systems who may soon collect benefits. Non-profit group Americans for Fair Treatment also joined in the suit. They point out that state regulations strictly define the fiduciary duties of fund managers, whom they say have a duty of "undivided loyalty to act in the interest of fund participants and beneficiaries." Public fund managers, they say, "must manage the Plans with a singular focus on what best serves the retirement interests of participants and beneficiaries."

Of particular concern to the plaintiffs is a recent move by the systems to divest all of their interests from publicly traded fossil fuel securities and to instead allocate resources to "green" investments. The plaintiffs contend that such a decision was the result of a longstanding activist pressure campaign and that it had "no basis in sound investment strategy."

The challenge specifically notes that other New York City pension funds refused to divest from fossil fuel-based investments, asserting that to do so would not be in the best interests of their beneficiaries.

Ben Whedon is an editor and reporter for Just the News. Follow him on Twitter.