Dozens of U.S. pensions funds could move forward with plans to divest of fossil fuels now that a lawsuit targeting such divestments has been thrown out of New York state court, say people familiar with those plans.
Earlier this month a New York state judge dismissed a lawsuit against three of the five pension funds in the New York City Retirement Systems over their decision to divest of fossil fuels and redirect money into clean energy investments. In her ruling, New York State Supreme Court Judge Andrea Masley said the plaintiffs “have not, and will not, suffer any monetary losses based upon defendants’ investment decisions.”
New York City Comptroller Brad Lander called the decision “a big win for common-sense responsible investing, New York City’s municipal workers and retirees, and for the future of the city and the planet.”
The court noted the plaintiffs could not be harmed because the three funds are defined benefit retirement plans that entitle plaintiffs “to a fixed benefit each month.”
The lawsuit was brought in May 2023 by members of an anti-teacher union group called Americans for Fair Treatment, which has ties to other conservative groups. For example, it is an associate member of the State Policy Network, which includes a number of think tanks financed in part by Koch-related foundations and whose efforts have resulted in state laws outlawing investments made on ESG principles, specifically environmental concerns.
The New York case seemed like more of the same politics. It had a “chilling effect” on pension funds who were considering divestment from fossil fuels, said Richard Brooks, the climate finance director of Stand.earth, a nonprofit environmental organization that worked closely with the New York City pensions in their divestment decision. He said that after the lawsuit was filed “decision makers” at pension funds wanted to “slow down” their plans.
But now that the lawsuit has been tossed, he expects “dozens of pension funds who had eyes on this lawsuit to advance their efforts” to get out of fossil fuels and to “put more money into low carbon energy.” He declined to name the pension plans.
“The decision makes clear that there is no financial impact because their benefits are guaranteed,” said Brooks. “And that is very much the case for public pensions right across the board. Their benefits are guaranteed regardless of the performance of the fund.”
That said, one of the arguments his organization has made in lobbying pension funds like those in New York has to do with the relatively poor stock performance of fossil fuel companies. He noted that the fossil fuel sector has been underperforming the S&P 500 for the past decade, despite an upturn in oil prices at the beginning of the Ukraine war.
The argument that divestment from fossil fuels is a sound fiduciary decision has found receptivity among more than 1,600 institutions across the globe that have divested more than $40 billion in fossil fuel companies, according to data collected by Stand.earth. About a quarter of that came from U.S. institutions, including pension funds, educational institutions, philanthropic foundations, faith-based organizations, and for-profit companies.
Aside from New York City, several other U.S. city pension funds have divested from fossil fuels, including those in San Francisco, Los Angeles, Boston, Pittsburgh, Seattle, and Chicago. At a statewide level, Maine and Oregon are requiring divestment for all state entities, although Oregon is divesting only from coal.
Globally, 200 pension funds have already dumped almost $8 billion in fossil fuel investments. Other big names that have gotten out of fossil fuels include Harvard, the University of Oxford, and the Ford Foundation.
However, some institutions, notably the California Public Employees’ Retirement System, have argued against divestment, saying that it’s better to stay invested in fossil fuel companies and try to push them onto a path of clean energy.
Brooks said that has not been a winning strategy. He pointed to the activist campaign by Engine No. 1 that managed to get three people on the board of Exxon Mobil. “Everybody thought that that was going to revolutionize the company and it was going to change direction and they were suddenly going to become a renewables company,” he said.
Instead, “Exxon has basically doubled down on continuing to be one of the top producers of oil and gas in the world,” he continued. “I knew all along that it wasn’t going to change them because their DNA is to produce oil and gas and they are going to continue to produce oil and gas and attempt to be the last producer of the last barrel of oil and the last metric ton of gas because that’s who they are.”
In addition to the Americans for Fair Treatment organization itself, four participants in the three pension funds sued the New York City pensions, claiming divestment was an “unlawful decision to elevate unrelated policy goals over the financial health of the plans.”
The individuals were listed as a subway train operator, a former city public school teacher, an occupational therapist in a city elementary school, and a school secretary in the city’s Department of Education. Their names were not disclosed.
David Osborne, special counsel for the AFT, did not return a request for comment.
It’s uncertain whether the group will appeal. Gibson Dunn partner Akiva Shapiro, who represented the plaintiffs, said in an email that “We are reviewing the Court’s decision and evaluating potential next steps.”
Many other lawsuits brought by conservative groups on issues like affirmative action have been filed in federal court, which means the appeals process can eventually take them to the conservative-leaning U.S. Supreme Court. However, state cases are different. If these plaintiffs were to appeal and lose at the New York State Court of Appeals, the case could only be heard by the U.S. Supreme Court if a federal law was violated.
Since the court “dismissed the claims solely based on state law, the Supreme Court cannot review the case,” said Natalia Renta, senior policy counsel for the Americans for Financial Reform. “This lawsuit was just part of a broader anti ESG movement that throws spaghetti at the wall.”
