A former employee, Renee Kvek, filed a class-action lawsuit against Cushman & Wakefield alleging the firm violated its fiduciary duties under ERISA by failing to consider climate-related financial risk in its 401(k) investment lineup. This was certainly a new twist and worthy of a tropical drink with a lemon twist perhaps?
Her lawsuit focuses primarily on the inclusion of the Westwood Quality SmallCap Fund in the company’s retirement plan. According to the suit, the fund had multiple warning signs:
-Chronic underperformance relative to its benchmark,
- High fees
- Significant exposure to industries vulnerable to climate-related financial risks
- An explicit policy of not modeling or managing climate risk in the portfolio
Renee argues that plan fiduciaries failed to conduct the “thorough, unbiased deliberative process” required under ERISA when selecting and monitoring plan investments.
She also alleges in her lawsuit that the fund’s portfolio concentrated exposure to sectors particularly vulnerable to climate impacts and regulatory transition risks, leaving retirement savers exposed to “undue risk of even more severe losses.”
As I have said repeatedly, I am not an attorney but this does seem to be one of the first ERISA lawsuits alleging fiduciary failure for ignoring climate-related financial risk in a retirement plan...that I can recall.
Climate risk is financial risk
Renee's case is built on a simple premise: climate risk is financial risk.
Her complaint argues that climate change can affect investment performance through several channels:
1. Physical risk Extreme weather events such as floods, wildfires, droughts, and storms can directly damage assets, disrupt supply chains, and reduce corporate profitability. The latter hits home as I shared with you in my article about my home owner's insurance being canceled with a two-day notice. My replacement policy is more expensive and less comprehensive.
2. Transition risk Regulatory changes, carbon pricing, technological shifts, and changing consumer preferences can negatively affect companies dependent on fossil fuels or high emissions.
3. Market repricing Investors are increasingly adjusting valuations based on climate exposure, which can affect sectors ranging from energy to insurance to real estate.
Because these risks can cut across industries and asset classes, they can accumulate in diversified portfolios if not intentionally evaluated and managed.
Do as we say but not as we do?
The most striking aspect of the complaint is the internal inconsistency alleged in Cushman’s own practices.
According to the lawsuit:
• Cushman markets itself as an expert in climate-risk analysis for real estate portfolios.
• The company publicly states that “climate risk is financial risk.”
• It uses climate-risk tools and analysis when advising real estate investors and managing assets.
Having read the Cushman 2024 Sustainability report, I find myself wondering If a company:
• tells investors and clients that climate risk materially affects asset values
• builds advisory services around managing that risk
• integrates it into corporate strategy
then fails to even evaluate the same risk in the company’s own retirement plan, could that look arbitrary or negligent?
In other words, the fiduciary argument is not that the plan needed ESG funds. The argument is that the plan fiduciaries ignored a risk the company itself publicly treats as financially significant.
Historically, ESG litigation argued that fiduciaries should not pursue “social goals.” This case flips the argument: plaintiffs claim fiduciaries failed to manage a financially material risk. Shades of the term, pecuniary, perhaps?
For plan sponsors, the practical takeaway is not that every lineup must contain ESG funds. Instead, the fiduciary duty argument is procedural:
Sponsors must be able to demonstrate that they considered all financially material risks when evaluating investments.
Climate risk may fall into that category for several reasons:
• Long-term retirement horizons (20–40 years)
• Sector-wide impacts on energy, insurance, agriculture, and real estate
• Increasing regulatory disclosure requirements
• Growing availability of climate-risk analytics
Ignoring a widely recognized financial risk—particularly one the sponsor itself acknowledges in other parts of its business—creates a potential fiduciary vulnerability.
The Parting Glass
A prudent fiduciary process should be able to demonstrate that the committee evaluated fees, performance, diversification, manager process, and material macro risks that could affect long-term returns
Climate risk is increasingly being framed as one of those macro risks.
Sponsors do not need to “invest for climate goals.” But they should be able to show that they considered climate-related financial risks the same way they would consider inflation risk, interest-rate risk, or geopolitical risk.