NYC tackles fossil fuels with ESG despite GOP opposition.

New York⁢ City Takes​ Bold Steps to Exclude Fossil Fuel ⁤Companies from Pension Funds

New ​York⁣ City is leading the charge⁤ to exclude fossil‍ fuel⁣ companies from ⁣pension‍ funds,⁤ despite⁤ pushback to⁢ ESG from ⁣Republicans ‌at the state and national‌ levels.

The Big Apple ⁤has, ‌largely across the⁣ board, ‌been working to cut⁤ greenhouse gas emissions in ⁢an effort to curtail climate⁣ change. ⁢But ​it stands apart in its⁤ ambitious embrace of environmental, social, and governance ​investment principles, collectively known as ESG.

Proponents and Critics ⁣Clash ​Over ESG Investing

Proponents of ESG ‍investing, such ​as ⁢New York City‌ Comptroller Brad ⁤Lander, who oversees ‌the city’s⁢ pension‌ plans, see⁤ ESG ‌investment⁢ strategies,‍ for example, moving away from investments in the fossil fuel ⁤industry, as compatible⁣ with ⁢fiduciary⁢ duty, ‌as they contend ⁤divestments help ⁤safeguard plan ​beneficiaries⁤ from the longer-term financial⁢ risks associated with disruption ‍from‍ climate ‌change.

But critics, like ​Republican attorneys‌ general and ⁣state treasurers across the country, see‌ ESG ⁤investing as a⁤ breach of fiduciary duty. They contend that‌ the ESG push is a⁣ way for liberal climate goals to ‍be injected into the private market‍ without ⁢the ⁤use of‌ the ‌ballot⁢ box, ⁣and that​ fund managers that⁢ do so are violating their duty to get beneficiaries the best returns on ⁢investment.

Lawsuit Challenges Fossil⁤ Fuel Divestment Decision

Now the board of trustees of three different pension systems ⁤is facing a lawsuit over the ⁣2021 decision⁣ for⁣ three funds to divest⁣ from fossil fuels. The lawsuit ‍argues that ​the New​ York ‌City Employees’ Retirement System, the ⁢Teachers’ Retirement System, and the Board of Education Retirement System are all‌ in ​violation of their fiduciary duties by committing to having net-zero emissions in their portfolios by 2040.

Lander,⁢ a Democrat, is not buckling to ⁤the⁢ pressure ⁣in what could be ⁣a⁢ test‍ case for​ further moves to​ forward⁣ ESG investing ​and divestment from the fossil fuel⁤ space ​in municipalities across the country. He contends ⁢that critics on the Right ‍have made ESG ‍a ⁣political⁣ hot​ potato and that⁣ the move toward ESG ​investing shouldn’t be an inherently political matter.

“I wish I could‌ start from⁢ square⁣ one, when the​ field⁣ hadn’t already been polarized,” he ⁢told Bloomberg⁣ Law last month. “I ⁢wish ⁢you​ could⁣ start from a place of saying, ‘Let me talk ⁤to you about what the ⁣pension obligations are ​that ‍run ‌out for decades.’”

The lawsuit, which ​was ‍filed in May by a group​ of public‍ employees, seeks unspecified ⁣damages,‍ including reimbursement of‍ losses from the divestment.

The lawsuit claims ⁢that ⁢the defendants breached their fiduciary duties⁤ and abused control over their plan assets by divesting some ​$4 billion in‍ holdings in companies involved ‌in ⁣the extraction of⁤ fossil fuels,‍ something that⁣ the complaint characterized ⁤as an‌ “ineffectual ⁣gesture to address⁣ climate ‌change.

“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,”⁣ the ⁢complaint reads.

Lander has argued that some of the pushback is a⁢ misunderstanding about‌ the ‌machinations in ⁣play. ‍Lander ⁣pointed ‌out⁢ last month that he doesn’t make⁣ direct investments, but that each ⁢pension fund’s‍ trustees and asset managers do. Lander said he just​ wants ESG to be⁤ a ⁤way of measuring risk.

“Everyone ⁢who‍ manages a large pool⁣ of ⁤money recognizes that⁤ it’s important to take long-term risks into account,”⁢ he​ said.​ “We take environmental, social,‌ and governance concerns very seriously in the context of all our investments⁣ across our portfolio,⁣ because that is not only consistent with⁢ fiduciary duty, it’s⁣ required by‌ fiduciary ‌duty.”

Will Hild,⁤ the executive‍ director‍ of ​the conservative ​group Consumers’ ⁣Research, which has been a⁢ major critic of​ ESG, said that the⁤ lawsuit​ will be ‍watched​ closely given the broader‍ implications of‍ ESG and how municipalities handle these ⁢sorts ‍of ⁢issues.

“I think⁣ that ​just ‍the‍ filing ⁣of ⁤this case is going to send shockwaves through ‍public officials ‌who ‌have been politicizing ⁤and weaponizing‍ their states‍ and ‌localities’ ⁤pension⁤ funds in⁣ violation of the ⁣law,” he told the Washington ⁣Examiner.

Hild also said⁤ that the discovery is going ​to have ⁣big‍ implications “because it is going to force the comptroller to⁣ admit the myriad ways they have been colluding with other players, ⁢other pension funds, other⁤ major asset‍ managers ⁣in ways⁣ that are completely⁢ outside of ⁢their legal⁣ authority.”

The fight over the ⁣divestment and integration of ESG‌ in New ⁣York City ‌is⁢ a microcosm of ‌the ⁢fight​ being waged ⁢in states​ across​ the ⁢country and ⁣at⁤ the ‍national‍ level.

Several​ states, ⁣including West Virginia, have made moves ⁣to ‌protect​ pension‍ funds from⁣ ESG. For example, Florida​ announced earlier this ‌year it‌ is prohibiting state-run fund​ managers from ‍considering ESG factors ⁤when ​making investments. ⁢Some ​states have also announced big⁤ divestments from money ‍managers such as⁤ BlackRock.

For⁤ instance,​ Missouri⁣ announced ‌last ‌year⁤ that⁣ it would yank some $500​ million in pension funds from BlackRock, joining ⁤other Republican-led states divesting from the firm, which ‍has ‌become a top target ⁣of‍ the GOP, over⁣ its‍ commitment to ⁢ESG ‌goals in investing.

“Fiduciary duty⁤ must remain⁢ the ‍top priority‍ for ⁣investment ​managers, a duty​ some ⁢of them⁤ have abdicated in‌ favor of forcing a left-wing social and political​ agenda that ⁢has​ failed to‌ succeed legislatively on publicly traded companies,”⁤ said‍ Missouri State‍ Treasurer Scott ‌Fitzpatrick ⁤at‌ the‍ time.

ESG, and pushback against ⁢it, is ⁣getting big attention at the‌ national level too. Last week, Republicans ‍held a series of congressional⁤ hearings to ⁢emphasize ‍their opposition to​ the federal government’s embrace of ESG policy and spark conversation surrounding​ the ​topic.

A ⁤big‌ part of the‌ ESG blitz ⁢on Capitol‍ Hill was‌ because of how hard the ⁢Biden administration is pushing ESG ​through‌ federal agencies and the rulemaking process, ​according to Rep. Bryan ‍Steil (R-WI), a member‍ of⁣ the House Financial Services Committee.

“I think⁢ it’s a ‍pretty rational understanding to realize that not only are the American people pushing back, but members of​ Congress and me, in particular,‌ have ⁣been bird-dogging this for some time,” ⁣Steil told ⁤the Washington ⁣Examiner during an​ interview.

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