Climate Risk, Fiduciary Duty and the Shifting ESG Debate

A new lawsuit filed in the United States is reframing one of the central questions in the ESG debate: whether failing to consider climate-related financial risks could itself represent a breach of fiduciary duty under ERISA.

A proposed class-action complaint filed on March 3 against Cushman & Wakefield and the fiduciaries of its 401(k) plan alleges a breach of duty not for incorporating environmental, social and governance (ESG) considerations into investment decisions, but for failing to properly evaluate climate-related financial risks. In doing so, the case directly challenges the dominant legal narrative of the past several years, which has focused on whether ESG considerations improperly introduce non-financial objectives into fiduciary decision-making.

The lawsuit, Kvek v. Cushman & Wakefield U.S. Inc., filed in U.S. District Court in Seattle, also claims that plan fiduciaries retained an underperforming investment option, the Westwood Quality Small Cap Fund, which delivered an average annualised return of 6.57% over five years through 2025, significantly trailing the Russell 3000 benchmark’s 13.15% return. The complaint further alleges that the fund charged fees nearly twice the industry average for comparable strategies in retirement plans of similar size.

Plaintiffs’ counsel Cohen Milstein Sellers & Toll has described the case as potentially “profound” in its implications for retirement plans, suggesting it could establish climate-risk management as a necessary component of fiduciary prudence.

Cushman & Wakefield, which reported $10.3 billion in revenue in 2025, has rejected the allegations and stated that it maintains “thoughtful processes” for overseeing plan investments and intends to defend the case vigorously.

The Broader Context: ESG Backlash and Regulatory Uncertainty

The case emerges at a moment of significant political and market tension surrounding ESG investing in the United States.

Over the past three years, a growing backlash against ESG integration has emerged among certain policymakers, investors and commentators who argue that ESG considerations risk subordinating financial returns to political or social objectives. Several U.S. states — including Texas, Florida and West Virginia — have introduced measures restricting the use of ESG criteria in public pension investments or limiting relationships with asset managers perceived to be boycotting fossil fuel industries.

This political pressure has contributed to a recalibration by some of the largest global asset managers. BlackRock, which once framed climate change as a defining investment risk, has softened its public language and emphasised that it does not pursue “ESG mandates” in index strategies. Vanguard withdrew from the Net Zero Asset Managers initiative in 2022, citing concerns that membership could be interpreted as constraining fiduciary independence. State Street Global Advisors has similarly moderated aspects of its climate engagement approach.

Advisory firms and consultants have also adjusted their framing. Rather than promoting ESG integration as a distinct investment philosophy, many now emphasise financial materiality and risk management, particularly in areas such as climate transition risk, physical climate impacts, supply chain resilience and corporate governance practices.

At the asset owner level, the picture is more nuanced. While some public pension funds in politically conservative states have moved to restrict ESG-related strategies, many large institutional investors — including European pension funds and sovereign wealth funds — continue to view climate risk as a material financial factor that must be incorporated into long-term investment decisions.

A Legal Debate Moving in Two Directions

The Cushman lawsuit arrives amid an unsettled regulatory landscape. The U.S. Department of Labor is currently reviewing its guidance on ESG investing under ERISA, with indications that regulators may again revise rules governing how fiduciaries may consider ESG factors when selecting investments.

At the same time, a recent federal court ruling involving American Airlines concluded that plan fiduciaries violated ERISA by incorporating ESG considerations in investment oversight — the first judicial decision to take such a position. That ruling has been widely cited by critics of ESG integration.

The Cushman case advances the opposite argument: that climate-related risks are not ideological considerations but financially material factors that prudent fiduciaries must evaluate as part of their investment oversight responsibilities.

In essence, the case raises a fundamental question about how fiduciary duty is interpreted in an era of systemic risks. If climate change poses measurable risks to corporate assets, supply chains, infrastructure and economic stability, plaintiffs argue, ignoring those risks could represent a failure of prudent risk management.

Implications for the Investment Chain

Legal experts caution that even if the plaintiffs prevail, a single district court ruling would establish limited legal precedent. Nonetheless, the case could have significant signalling effects for fiduciaries overseeing retirement plans and institutional portfolios.

As ERISA attorney Marcia Wagner has noted, the mere existence of the lawsuit places fiduciaries “on notice of a possible exposure” if climate-related financial factors are absent from their investment analysis.

For investment committees, consultants and asset managers, the broader lesson may be that the ESG debate is evolving beyond the binary question of whether such factors should be considered. Increasingly, the issue is how financially material risks — including those associated with climate change — are identified, analysed and incorporated into investment decision-making within the bounds of fiduciary duty.

In that sense, the Cushman case may mark a turning point in the legal and conceptual framing of ESG. Rather than asking whether ESG considerations conflict with fiduciary responsibility, courts and regulators may increasingly confront the opposite question: whether failing to consider material sustainability-related risks constitutes a breach of it.