A federal court ruled that American Airlines was in violation of federal law for basing investment decisions regarding its employee retirement plan on Environmental, Social, and Corporate Governance (ESG) principles.
The January 10 decision by U.S. District Judge Reed O’Connor of Texas is one of the first legal blows to the controversial ESG ideology that has taken over many corporate boardrooms and pension funds across the country.
Conservatives have opposed pension fund managers for basing their investment decisions on left-wing causes like climate change, equity, and social justice.
One of the biggest drivers of ESG ideology is the U.S.-based multinational investment management firm Blackrock, which has faced multiple attacks by GOP-controlled state legislatures and House Republicans. BlackRock, American Airlines’ primary asset manager and a major shareholder, is not involved in the lawsuit.
“The evidence made clear that [American’s] incestuous relationship with BlackRock and its own corporate goals disloyally influenced administration of the Plan,” wrote O’Connor in his decision.
The federal judge said that the airline breached its legal duty by focusing on ESG policies at the behest of BlackRock instead of making investment decisions that would benefit the financial interests of its 401(k) plan beneficiaries. However, O’Connor said that although the airline had breached its loyalty to its retirement plan holders, it did not violate its duty of prudence because the company was acting according to prevailing industry standards.
He then added that he would later decide on whether 401(k) participants suffered financial damages and if the airline must compensate them for their losses.
The federal judge had earlier ruled in favor of American Airlines pilot Bryan Spence last June, who sued the airline on behalf of more than 100,000 beneficiaries on the retirement plan. The pilot claimed that his employer violated the federal Employee Retirement Income Security Act (ERISA) by failing to remain loyal to 401(k) plan participants and faithfully oversee their assets.
The case went to court in February 2023, when O’Connor rejected the airline’s attempt to dismiss Spence’s lawsuit on the grounds that he failed to prove that the 401(k) plan had underperformed. Meanwhile, Blackrock said last week that it would quietly abandon the Net Zero Asset Managers Initiative, a pro-ESG investors group, under political pressure from Republicans and activists.
BlackRock and its two main rivals, Vanguard and State Street, who together hold a 90% monopoly on the asset management market, were sued by eleven Republican-controlled states in November based on the accusation that they violated federal antitrust law via their radical ESG anti-fossil fuel policies.
The three firms had allegedly pressured coal companies to undermine their output to reduce greenhouse gases, causing energy costs to jump in those states.
A Texas federal judge is also considering a legal challenge to an executive order by President Joe Biden, by 25 Republican-led states and the oil drilling firm Liberty Energy.
The Biden administration had overturned a regulation from the previous Trump administration to permit socially conscious investment policies by employee retirement plans. Incoming President-elect Donald Trump is expected to revert that order when he returns to the White House for his second term next week.