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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 a judge claiming the world’s largest asset manager was tainted by “ESG activism”.
The ruling by North Texas District Judge Reed O’Connor illustrates how US companies are facing legal risks Environmental, social and governance and diversity and inclusion policies.
O’Connor’s rulings come amid a cultural war in the United States to promote everything from racial diversity to protecting the environment. President elected Donald Trump And allies like Elon Musk have strongly objected to the schemes, and some companies have begun reversing them ahead of Inauguration Day later this month.
“Here [case] ESG is not about funds at all,” said Josh Lichtenstein, partner at law firm Ropes & Gray. He said it was one of the biggest cases in US retirement fund litigation because “it seems, to me, the same claim could be brought against literally any 401k plan in America”.
Conservative groups have followed these types of cases in recent years and tried to hand-pick judges they think will side with them. O’Connor, a George W. Bush appointee, fired last month Boeing’s 737 MAX application contract 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 duty to employees in its 401k plan by hiring investment managers “who pursue left-wing political agendas through ESG strategies”. BlackRock is not named in the complaint, and the asset manager is not a party to the suit.
However, O’Connor retained BlackRock’s relationship with American Airlines as the largest investment manager for its 401k plan. The savings scheme included passive index funds and active funds, but no ESG-specific strategies.
But he said BlackRock’s 2021 vote for hedge fund engine No. 1 in a proxy fight with energy giant ExxonMobil — among other votes — amounts to “ESG activism.” American Airlines “allowed BlackRock to continue to manage billions of dollars [401k] Asset planning in pursuit of non-economic ESG interests,” said O’Connor.
O’Connor ruled that American Airlines breached its fiduciary duty to plan participants by failing to distinguish “BlackRock’s ESG interests” as well as its own corporate goals “resulting in perceived cross-pollination.” However, he said American had not breached its duty of discretion “in the design and implementation of its processes for project monitoring”.
The judge deferred ruling on whether the plan had caused any harm to participants.
BlackRock said: “We always act independently and with a singular focus on our clients’ best financial interests. Our only agenda is to maximize returns for our clients, consistent with their preferences.”
American Airlines did not respond to requests for comment.
Additional reporting by Claire Bushey
