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A US federal court has ruled that American Airlines failed employees by choosing BlackRock to manage part of its pension scheme, with the judge saying the world's largest asset manager was tainted by “ESG activism”.
Texas district judge Reed O'Connor's ruling underscores how US companies face increasing legal risks. environmental, social 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. president-elect Donald Trump and partners like Elon Musk have strongly opposed the plans and some companies have begun to push them back ahead of the Launch Date later this month.
“This (situation) is not about ESG funds at all,” said Josh Lichtenstein, a partner at law firm Ropes & Gray. He said it was one of the biggest of all US pension fund lawsuits to watch because “this, to me, looks like a similar claim could be brought against any 401k plan in America”.
Conservative parties have pursued these types of cases in recent years and want to handpick the judges they think will be on their side. O'Connor, who was appointed by George W Bush, was fired last month Plea agreement for Boeing 737 Max and the US Department of Justice on grants related to diversity, equity and inclusion.
The American Airlines class action lawsuit, filed by the pilot in 2023, alleges that the airline breached its fiduciary duties to employees in its 401k plan by hiring investment managers who “pursue left-wing political agendas through ESG tactics”. The complaint did not name BlackRock, and the asset manager is not a party to the lawsuit.
However, O'Connor holds BlackRock's relationship with American Airlines as the largest investment manager in his 401k plan. The savings scheme includes passive index funds and active funds, but does not include any specific ESG strategies.
But he said BlackRock's 2021 vote in favor of hedge fund Engine No. American Airlines “allowed BlackRock to continue to manage a multibillion-dollar (401k) asset plan since ESG interests are not economic,” O'Connor said.
O'Connor ruled that American Airlines breached its fiduciary duty to plan participants by failing to separate “BlackRock's ESG interests”, and its own business objectives, “resulting in impermissible polarization”. However, he said the United States had not breached its duty of discretion “in relation to the design and implementation of its strategic monitoring systems”.
The judge reserved a decision on whether the plan's participants suffered any losses.
American and BlackRock did not respond to requests for comment.
Additional reporting by Claire Bushey