Stay informed with free updates
Simply register at ESG investing myFT Digest – delivered straight to your inbox.
A US federal court has ruled that American Airlines failed its 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 decision by Northern District of Texas Judge Reed O’Connor highlights how U.S. businesses face growing legal risks when it comes to environmental, social and governance policies, as well as diversity and inclusion.
O’Connor’s decisions come amid a culture war in the United States over programs promoting everything from racial diversity to environmental protection. President-elect Donald Trump and his allies like Elon Musk have vigorously opposed the plans, and some companies have begun canceling them before Inauguration Day later this month.
“This [case] is not relevant to ESG funds at all,” said Josh Lichtenstein, a partner at law firm Ropes & Gray. He said it was one of the most important cases to watch in all U.S. retirement fund litigation because “it seems to me that the same claim could be brought against literally no any 401k plan in America.”
Conservative groups have taken up such cases in recent years and sought to select judges they believe would be on their side. O’Connor, a George W. Bush appointee, last month rejected Boeing’s plea deal with the U.S. Justice Department over the 737 Max because of 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 its employees under its 401k plan by hiring investment managers “who pursue left-wing political agendas through ESG strategies”. The complaint does 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 his 401k plan. The savings plan included 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 to manage billions of dollars of [401k] planning assets 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 ESG interests” as well as its own corporate objectives, “resulting in impermissible cross-pollination.” . However, it said American did not breach its duty of care “with respect to the design and implementation of its plan monitoring processes.”
The judge deferred ruling on whether plan participants suffered losses.
American and BlackRock did not respond to requests for comment.
Additional reporting by Claire Bushey
