Cushman & Wakefield Suit Over 401(k) Climate Risks Draws Doubts

A novel lawsuit alleging Cushman & Wakefield US Inc.’s retirement plan illegally ignored climate-related factors is drawing skepticism about 401(k) holders’ ability to show harm and prove funds underperformed.

Former employee Renee Kvek claimed in a proposed class action that the commercial real estate firm’s 401(k) plan was mismanaged because it included the Westwood Quality Small Cap Fund, which is “willfully blind to climate-related financial risks.”

Attorneys specializing in the Employee Retirement Income Security Act and environmental, social, and governance issues said though the lawsuit appears to be the first of its kind, it’s unlikely to spur a new breed of climate-based ERISA litigation.

“Once you get past the broad statements in the complaint and more into the substantive allegations, what this really seems to boil down to is your run-of-the-mill ERISA case where they’re complaining about underperformance and excessive fees,” said Amy Roy, a partner at Ropes & Gray LLP.

The lawsuit is the latest wrinkle in an evolving legal and regulatory landscape for employers around the role of ESG in retirement plans.

Plan sponsors are waiting on President Donald Trump’s Labor Department to rewrite a Biden administration rule that allowed plans to consider ESG factors as tiebreakers when choosing between investment options.

Kimberly Blake, an attorney at ClientEarth USA, one of the groups representing the plaintiffs, said in a statement climate risk is an economic issue and that one “cannot claim to be a prudent fiduciary while ignoring the biggest systemic threat to the global economy.”

Kvek alleged in her March 3 complaint, filed in the US District Court for the Western District of Washington, that the company “exposed employee retirement savings to significant, unreasonable climate-related financial risk—apparently failing to employ any climate risk management strategy at all.”

Potential Roadblocks

The challenge of proving Article III standing to sue Cushman & Wakefield could sink the suit before the merits stage.

Kent Mason, a partner at Davis & Harman LLP who represents retirement plan fiduciaries, said the complaint fell short of showing plan participants were harmed. It does not support the claim that the plan managers did not take climate risks into account, nor does it prove that alleged failure led to lower returns, he said.

The suit would need to either show there has been harm to the plan, or the likelihood of imminent harm because climate risk caused foreseeable losses for investments in the fund, Mason said.

The fund’s prospectus and statement of additional information do not contain references to ignoring climate risk or other investment-related risks, according to Roy.

She said plaintiffs would likely need to establish that if the fund had adequately assessed climate risk, it would have performed better. That will be difficult to show, Roy said, but “courts give a fair amount of leeway at the early pleading stages.”

The complaint did not include future projections of how climate might affect the performance of the fund. Some studies have found climate poses long-term risks for retirement investments, though shifts to climate-friendly investments have also not been risk-free.

There’s also uncertainty over whether the complaint includes a “meaningful benchmark” for the claims of underperformance, as courts have required under ERISA.

The lawsuit compares the performance of the Westwood Quality Small Cap Fund to that of the Russell 3000 Index. But the former is an actively managed fund, while the latter is an index fund, making it a potentially difficult comparison.

“Had the Westwood Fund’s peers likewise also outperformed or charged lower fees than the Westwood Fund, I assume the plaintiffs would have included that peer set in their allegations,” Roy said.

Federal appeals courts, including the Ninth Circuit that covers Washington, require a comparator that’s sufficiently similar to the fund or fee structure being challenged in order to show an investment was imprudent and violated a plan sponsor’s fiduciary duties.

The US solicitor general recently warned that meaningful benchmarks under ERISA should not be based on conclusory comparisons to market index composites.

The US Supreme Court will hear a case this fall from Intel Corp. workers that also deals with the standard’s application.

Cushman’s Approach

A Cushman & Wakefield spokesperson in an emailed statement called the climate lawsuit a “variation on widely asserted legal theories.”

“We have thoughtful processes in place that are designed to give our plan participants a variety of prudent investment options,” the statement said.

The complaint details extensively how Cushman & Wakefield has for years shown its awareness of the threat climate risks pose to its commercial real estate operations.

The company was likely targeted with a lawsuit because of the nature its business, benefits attorneys said. Contrasting Cushman’s business approach to climate risks with the investment fund’s alleged approach is a strategy to bolster imprudence arguments, they said.

“They have great rhetoric on this comparison of how much Cushman & Wakefield took into account climate risk and how much the fund may have, but they have no evidence,” Mason said.

ESG-related retirement investment suits have largely targeted public pensions outside the ERISA framework.

In one other private-sector case, a Texas federal court ruled that American Airlines Inc. violated its fiduciary duty of loyalty by failing to rid its retirement plan of ESG goals. The judge in that case did not award monetary damages, as he failed to find evidence of financial loss to the plan.

The shifting legal and regulatory environment has put a spotlight on fiduciaries as they seek to navigate the uncertain landscape, said Christopher Rillo, a partner at Baker Botts LLP.

“Generally speaking, fiduciaries aren’t supposed to use nonmonetary axioms in making their investments,” Rillo said. “That’s why ESG investing has been under attack. You’re supposed to look and see what the rate of return is for shareholders and make your investments based on maximizing value for the plan assets.”

The case is Kvek v. Cushman & Wakefield, US, Inc., W.D. Wash., No. 2:26-cv-00736