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A federal judge in Texas has ruled that American Airlines violated federal law by prioritizing environmental, social, and governance (ESG) factors over financial interests in its 401(k) retirement plan. The decision, issued by U.S. District Judge Reed O’Connor, marks a significant moment in the debate over socially-conscious investing amid increasing conservative criticism.
Judge O’Connor found that American Airlines breached its duty of loyalty under the Employee Retirement Income Security Act (ERISA) by allowing BlackRock its asset manager, to emphasize ESG factors in investment decisions. He stated that American’s alignment with BlackRock's ESG agenda compromised the financial interests of over 100,000 retirement plan participants.
BlackRock denied the allegations, stating that its sole focus remains maximizing client returns. The ruling followed a class action led by pilot Bryan Spence, who accused American of failing to prudently oversee retirement assets.
While O’Connor ruled that American violated its duty of loyalty, he noted the company adhered to industry standards, avoiding a breach of prudence. The court will later determine whether participants suffered financial harm and if American must pay damages.
The case is part of a broader backlash against ESG investing. In November, BlackRock and two other firms were sued by 11 Republican-led states, alleging their climate-focused initiatives violated antitrust laws. BlackRock called the claims baseless.
This ruling adds complexity to the ongoing debate over ESG investments, which gained momentum under the Biden administration's 2023 rule allowing ESG factors as a "tiebreaker" in certain investment decisions. That rule replaced a Trump-era ban on non-financial considerations, but it faces legal challenges from Republican-led states and energy companies.
American Airlines is reviewing the decision, while BlackRock remains uninvolved in this particular lawsuit.
