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A US federal court has ruled that American Airlines failed workers by choosing BlackRock to manage part of its pension scheme, with the judge claiming the world's largest asset manager was tainted by “environmental, social and governance activism”.
The ruling by North Texas District Judge Reed O'Connor underscores how American companies face increasing legal risks Environmental, social and governance 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 Allies like Elon Musk have strongly objected to these plans and some companies are starting to back away from them before Inauguration Day later this month.
“This (case) is not about ESG money at all,” said Josh Lichtenstein, a partner at law firm Ropes & Gray. He said it was one of the biggest issues to watch in all the lawsuits brought by US pension funds, because “this, to me, sounds like the same claim could be made against literally any 401k plan in America.”
Conservative groups have pursued these types of cases in recent years, seeking to choose judges they believe will side with them. O'Connor, appointed by George W. Bush, was fired last month Boeing 737 MAX plea agreement With the US 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 carrier 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 did not mention 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 system consisted of passive index funds and active funds, but did not include any ESG strategies.
But he said BlackRock's vote in 2021 for hedge fund Engine No. 1 in its proxy battle with energy giant ExxonMobil – among other votes – amounts to “environmental, social and governance activism.” American Airlines “allowed BlackRock to continue managing multibillion-dollar plan assets (401K) in pursuit of non-economic ESG interests,” O'Connor said.
O'Connor ruled that American Airlines breached its fiduciary duty of loyalty to plan participants by failing to separate BlackRock's “environmental, social and governance interests,” as well as the company's own goals, “resulting in an impermissible cross-pollination.” But he said America had not violated its prudent duty “to design and implement its operations to monitor the plan.”
The judge deferred judgment on whether plan participants suffered any losses.
American and BlackRock did not respond to requests for comment.
Additional reporting by Claire Bushey
