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A US federal court ruled that American Airlines failed workers by choosing BlackRock to manage part of its pension plan, with a judge saying the world’s largest asset manager was tainted by “ESG activism.” ”.
The ruling by North Texas District Judge Reed O’Connor underscores how American companies face growing legal risks from environmental, social and governance and diversity and inclusion policies.
O’Connor’s rulings come amid a culture war in the United States over programs that promote everything from racial diversity to environmental protection. president-elect donald trump and allies like Elon Musk have strongly opposed these plans and some companies have begun reversing them ahead of Inauguration Day later this month.
“This [case] “These are not ESG funds at all,” said Josh Lichtenstein, a partner at law firm Ropes & Gray. He said it was one of the most important cases of all US retirement fund litigation because “this, to me, looks like the same claim could be brought against literally any 401k plan in the United States.”
Conservative groups have pursued these types of cases in recent years and have tried to select judges they believe will side with them. O’Connor, a George W. Bush appointee, last month dismissed Boeing 737 Max plea deal with the United States Department of Justice on provisions related to diversity, equity and inclusion.
The American Airlines class action lawsuit, filed by a pilot in 2023, alleged that the airline had breached its fiduciary duties to employees in its 401k plan by hiring investment managers “who pursue left-wing political agendas through ESG strategies.” The complaint does not name BlackRock and the asset manager is not a party to the lawsuit.
However, O’Connor took advantage of BlackRock’s relationship with American Airlines as the largest investment manager for its 401k plan. The savings plan comprised passive index funds and active funds, but did not include any specific ESG strategies.
But he said BlackRock’s 2021 vote in favor of hedge fund Engine No. 1 in its proxy fight with energy giant ExxonMobil, among other votes, amounted to “ESG activism.” American Airlines “allowed BlackRock to continue managing billions of dollars in [401k] plan assets in pursuit of non-economic ESG interests,” O’Connor said.
O’Connor ruled that American Airlines had breached its fiduciary duty of loyalty to plan participants by failing to separate “BlackRock’s ESG interests” as well as its own corporate objectives, “resulting in impermissible cross-pollination.” However, it stated that American had not breached its duty of prudence “in relation to the design and implementation of its plan monitoring processes.”
The judge deferred a decision on whether plan participants suffered losses.
BlackRock said: “We always act independently and with a singular focus on what is in the best financial interests of our clients. Our only objective is to maximize profitability for our clients, consistent with their choices.”
American Airlines did not respond to a request for comment.
Additional reporting by Claire Bushey