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A US federal court has ruled that American Airlines has failed workers by selecting BlackRock to manage a portion of its pension plan, with a judge alleging that the world’s largest asset manager was influenced by “ESG activism.”
The ruling by northern Texas district judge Reed O’Connor highlights the increasing legal risks that US companies face regarding environmental, social, governance, diversity, and inclusion policies.
O’Connor’s decisions come amidst a cultural battle in the US over programs that advocate for everything from racial diversity to environmental protection. President-elect Donald Trump and allies like Elon Musk have strongly opposed these initiatives, leading some companies to backtrack on them before Inauguration Day later this month.
“This [case] is not about ESG funds at all,” stated Josh Lichtenstein, a partner at law firm Ropes & Gray. He noted that this case could have implications for numerous 401k plans across America.
Conservative groups have pursued similar cases in recent years, aiming to select judges who align with their views. O’Connor, an appointee of George W Bush, recently rejected Boeing’s 737 Max plea agreement with the US justice department over diversity, equity, and inclusion clauses.
The class-action lawsuit against American Airlines, filed by a pilot in 2023, claimed the carrier breached fiduciary duties by hiring managers who promote leftist political agendas through ESG strategies. The lawsuit did not name BlackRock, although the asset manager was the main investment manager for American Airlines’ 401k plan.
O’Connor criticized BlackRock for its 2021 support of hedge fund Engine No. 1 in a proxy fight with ExxonMobil, citing this as “ESG activism.” He argued that American Airlines allowed BlackRock to manage plan assets based on non-economic ESG interests.
O’Connor ruled that American Airlines breached its duty of loyalty to plan participants by failing to distinguish between BlackRock’s ESG interests and its own corporate objectives, resulting in improper influence. However, he determined that American did not breach its duty of prudence in monitoring the plan.
The judge postponed a decision on whether plan participants suffered losses.
BlackRock stated: “We always act independently and prioritize the best financial interests of our clients. Our focus is solely on maximizing returns for our clients, in line with their preferences.”
American Airlines did not provide a comment when requested.
Additional reporting by Claire Bushey
