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A US federal court has ruled that American Airlines failed its employees by choosing BlackRock to manage part of its pension plan. The judge said the world’s largest asset manager was tainted by “ESG activism”.
North Texas District Judge Reed O’Connor’s decision highlights how U.S. companies face increasing legal risks. Environmental, social and management and diversity and inclusion policies.
O’Connor’s decisions come amid a culture war in the US over programs ranging from racial diversity to environmentalism. President-elect Donald Trump And allies like Elon Musk have vehemently opposed those plans, and some companies are starting to reverse them ahead of Inauguration Day later this month.
“This (issue) is not about ESG funds at all,” said Josh Lichtenstein, a partner at law firm Ropes & Gray. It’s one of the biggest issues in all U.S. pension fund litigation because “it seems to me the same claim could be made against any 401k plan in America,” he said.
Conservative groups have been following these types of cases in recent years, trying to handpick judges they think will side with them. O’Connor, a George W. Bush appointee, was ousted last month. Boeing 737 Max plea deal With the US Department of Justice on provisions related to diversity, equity and inclusion.
In the year A 2023 American Airlines class-action lawsuit filed by a pilot alleges the carrier breached its fiduciary duty to employees in its 401k plan by hiring investment managers who “advance leftist political agendas through ESG strategies.” The complaint does not name BlackRock, and the asset manager is not a party to the lawsuit.
However, O’Connor retained BlackRock’s relationship with American Airlines as the largest investment manager for its 401k plan. The savings plan included passive index funds and active funds, but no ESG-focused strategies.
But BlackRock says the 2021 vote for hedge fund engine No. 1 in its proxy battle with energy giant ExxonMobil is — among other votes — “ESG activism.” American Airlines “allowed BlackRock to continue to manage billions of dollars of (401k) plan assets in pursuit of uneconomic ESG interests,” O’Connor said.
O’Connor ruled that American Airlines breached its fiduciary duty to plan participants and “resulted in an impermissible cross-pollination” of “BlackRock’s ESG interests” as well as its own corporate goals. However, the American did not violate its duty of care “in relation to the design and implementation of the process to monitor the plan”.
The judge deferred a ruling on whether plan participants suffered any damages.
American and Black Rock did not respond to requests for comment.
Additional reporting by Claire Bush
