American Airlines ESG investing strategy violated federal law, judge rules
A federal judge in one of the country’s most conservative district courts ruled Friday that American Airlines unlawfully incorporated environmental and sustainable governance (ESG) factors into its employee retirement plan.
In a 70-page ruling following a four-day non-jury trial, Judge Reed O’Connor of the Northern District of Texas ruled the airline violated its fiduciary duty of loyalty by letting asset manager BlackRock weigh environmental factors in 401(k) funds.
O’Connor, a George W. Bush appointee, wrote that allowing ESG investment violated the requirement under the Employee Retirement Income Security Act (ERISA) that such investments must prioritize plan member’s best interests.
“ERISA does not permit a fiduciary to pursue a non-pecuniary interest no matter how noble it might view the aim,” O’Connor wrote, writing that the airline’s “incestuous relationship with BlackRock and its own corporate goals disloyally influenced administration of the Plan."
He rejected a separate argument that the plan violated ERISA’s prudence requirement, writing that the investments were in keeping with “prevailing industry standards” regardless of his views on the practice.
Conservative plaintiffs have frequently filed cases with O’Connor relating to high-profile issues, including a 2016 challenge to Obama-era anti-discrimination rules regarding transgender students and a 2022 injunction against the Defense Department’s COVID-19 vaccine mandate for Navy SEALs. His ruling could tee up the first major court test of private ESG investing under the law.
The ruling comes as conservatives have been sharply critical of both ESG in particular and general stances on social and political issues by corporations and financial institutions. In 2023, President Biden issued his first veto against a Congressional Review Act (CRA) resolution blocking a Labor Department rule allowing for ESG investment. Then-Sens. Joe Manchin (I-W.V.) and Jon Tester (D-Mt.) joined all Senate Republicans in voting for the measure.
“We always act independently and with a singular focus on what is in the best financial interests of our clients. Our only agenda is maximizing returns for our clients, consistent with their choices," a BlackRock spokesperson told The Hill in a statement.
The Hill has reached out to American for comment.
Updated at 10:45 a.m. EST.
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