Most workers don’t spend much time thinking about the overlap between climate change and their retirement savings. They sign up for the company 401(k) plan when they get a new job, set a contribution rate, and (hopefully) watch their savings quietly grow. Occasionally, they might see headlines about climate change and wonder whether it will impact their financial security: in a rapidly warming world, will their nest egg continue to grow?
Employers have so far mostly stayed silent about how climate change could affect the retirement plans they offer their workers. But two recent lawsuits make clear that staying quiet on climate risk is no longer a neutral position for companies.
Lawsuit # 1: American Airlines sued due to fund manager’s climate-aware activities
In 2023, a judge in a Texas district court found that American Airlines breached its duty of loyalty to plan fiduciaries by not assessing and monitoring whether BlackRock’s “ESG” voting was in the Plan’s best financial interest. The judge found that BlackRock’s ownership of substantial American Airlines stock and American’s concern about climate change created conflict of interests that caused American to insufficiently undertake its duty to oversee BlackRock’s management in violation of its duty of loyalty to plan beneficiaries. The court did not find a breach of the duty of prudence, finding that American Airlines’ procedures comport with prevailing fiduciary standards,
Significantly, the court held that: “Investing that aims to reduce material risks or increase return for the exclusive purpose of obtaining a financial benefit is not ESG investing. Consideration of material risk-and-return factors is no different than the standard investing process when both are focused on financial ends.” The judge, however, was notably skeptical of climate change as a financial risk, putting him outside the mainstream of financial and regulatory thinking. Nonetheless, the court’s framing of ESG issues as non-pecuniary has created a “chilling effect” among some plan sponsors.
Lawsuit #2: Cushman & Wakefield sued for too little climate risk mitigation
In March 2026, a former Cushman & Wakefield employee filed a lawsuit making nearly the opposite argument: that the company failed to protect workers’ savings from climate-related financial risks. The suit alleges the company kept the Westwood Quality SmallCap Fund in its retirement plan despite documented underperformance, above-average fees, and significant climate-related exposure.
Perhaps the most striking allegation is the dissonance between how Cushman & Wakefield manages climate risk for its own operations and how it managed this risk for its employees. The company has publicly recognized climate change as a material financial threat, shielded its own balance sheet, and even sells climate risk advisory services to clients. According to the complaint, none of that analysis made it into the retirement Plan it administered for its own workers.
This is the first lawsuit alleging, among other claims, a failure to protect workers’ savings from climate-related financial risk, but it may not be the last. The mutual fund named in the lawsuit is offered in other retirement plans across the U.S., and other funds carry similar risks. If successful, the case could set the legal precedent that ignoring climate-related financial risk is no longer a defensible position. For plan sponsors across the country, the message is clear: climate risk does not disappear just because a fiduciary fails to look for it.
ERISA requirements
ERISA, the federal law that sets the rules for how employers must manage workplace retirement plans, requires fiduciaries to act prudently and in the sole financial interest of participants.
Despite the current partisan headwinds facing sustainable investing, the underlying climate-related financial risk is growing as climate emissions increase and consequent climate damage becomes more severe across the nation. Although there is no longer a real debate about climate change’s growing financial consequences, unfortunately the continuing “ESG” debate impedes a rational investment response.
Workers are already paying the fossil fuel tax
A report from the University of Waterloo and As You Sow found employees at 12 major tech companies could have earned $5.1 billion more over the past decade had employers decarbonized their retirement holdings. This underperformance is straightforward: the fossil fuel energy sector has been the worst performing sector in the economy over the past decade. But an individual company’s underperformance is only one consideration. Growing systemic risk and the potential for a GDP decline across the economy is particularly acute for younger investors whose retirement assets are likely to bear the brunt of climate-related GDP decline.
The bottom line
While the American Airlines case may have produced a temporary chilling effect among plan sponsors for adopting climate-related policies, the real-world impact of climate change is more evident than ever. Even private equity is beginning to pay attention to growing climate risk. Climate risk is material. It exists whether or not a plan sponsor chooses to look for it, and fiduciary duty does not come with an opt-out clause. The safe move for companies is to proactively measure and address climate-related financial risks facing employee benefits plans.
How to discuss this with your employer
You don’t need to be a lawyer or a financial expert to talk about this with your employer. Here are a few ways to start the conversation about how the company 401(k) plan should deal with climate risk.
Lead with returns, not values. The strongest argument isn’t about values alignment, it’s about performance. Ask your HR or benefits team whether your plan’s investment options have been evaluated for climate-related financial risk, and whether the funds you’re defaulted into have underperformed comparable benchmarks.
Point to the legal landscape. The American Airlines ruling made plan sponsors nervous about sustainable investing. The Cushman & Wakefield case is a reminder that the risk runs both ways. Fiduciaries are required to evaluate all material financial risks. Frame the conversation as risk management, not activism.
Ask specific questions. Which funds in your plan account for climate risk? Has the plan committee reviewed the performance of fossil-fuel-heavy index funds against lower-carbon alternatives? These are reasonable questions that any plan fiduciary should be able to answer.
You’re not alone. Workers across the country are having this same conversation with their employers. The more who ask, the harder it becomes to ignore.
Ready to see how your retirement plan stacks up? Use our Action Toolkit to find out what’s in your 401(k) and start pushing for options that reduce your climate risk exposure today.
