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A US federal court has ruled that American Airlines failed workers by choosing BlackRock to manage part of its pension plan, with the judge claiming the world’s largest asset manager was infected by “ESG activism”.
Northern Texas District Judge Reed O’Connor’s ruling underscores how U.S. companies face growing legal risks environment, society and governance and diversity and inclusion policies.
O’Connor’s rulings come amid a culture war in the US over programs that promote everything from racial diversity to environmentalism. elected president Donald Trump allies such as Elon Musk strongly opposed the schemes, and some companies began canceling them ahead of Inauguration Day later this month.
“This [case] it’s not about ESG funds at all,” said Josh Lichtenstein, partner at law firm Ropes & Gray. He said it’s one of the biggest cases in all of US pension fund litigation to watch because “this, to me, looks like the same lawsuit could be brought against literally any 401k plan in America.”
Conservative groups have taken up cases like this in recent years and sought to pick judges they think will side with them. O’Connor, a George W Bush appointee, was ousted last month Boeing’s 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 2023 pilot, alleges 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.” BlackRock is not mentioned in the lawsuit, and the asset manager is not a party to the dispute.
However, O’Connor leveraged BlackRock’s relationship with American Airlines as the largest investment manager for his 401k plan. The savings scheme consisted of passive index funds and active funds, but did not include any ESG-specific strategies.
But he said BlackRock’s 2021 vote in favor of Hedge Fund Engine No. 1 in his mediation battle with energy giant ExxonMobil—among other voices—represented “ESG activism.” American Airlines “allowed BlackRock to continue to manage billions of dollars [401k] plan assets in search of non-economic ESG interest,” said O’Connor.
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 goals, “resulting in impermissible cross-pollination.” However, he said American did not breach its duty of care “with respect to the design and implementation of its processes for monitoring the plan.”
The judge deferred ruling on whether plan participants suffered any losses.
American and BlackRock did not respond to requests for comment.
Additional reporting by Claire Bushey
