American Airlines’ use of ‘ESG challenger’ BlackRock failed, US judge says

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A US court has ruled that American Airlines failed workers by appointing BlackRock to manage part of its pension plan, and the judge said the world’s largest asset manager was tainted by “ESG activity”.

The ruling by North Texas District Judge Reed O’Connor highlights how US companies face increasing legal risks regarding environment, society and governance and diversity and inclusion strategies.

O’Connor’s rulings come amid a culture war in the US over programs that promote everything from racial diversity to environmentalism. the president-elect Donald Trump and allies such as Elon Musk have strongly opposed these plans and some companies have already begun to scale them back before Inauguration Day later this month.

“This (case) is not about ESG finance at all,” said Josh Lichtenstein, a partner at law firm Ropes & Gray. He said it is one of the biggest lawsuits to watch in the US pension fund because “it seems like a similar claim could be brought against any 401k plan in America”.

Conservative groups have followed these types of cases in recent years and have sought to handpick judges they think will be on their side. O’Connor, who was appointed by George W Bush, was fired last month Boeing 737 Max appeal agreement and the US Department of Justice on provisions related to diversity, equity and inclusion.

The American Airlines class action lawsuit, filed by the pilot in 2023, alleges that the carrier breached its fiduciary duties to employees in its 401k plan by hiring investment managers who “strategically pursue political agendas.” of ESG”. The complaint did not name BlackRock, and the asset manager is not a party to the lawsuit.

However, O’Connor considered BlackRock’s relationship with American Airlines as a major investment manager for its 401k plan. The savings scheme contained references to active funds and funds, but did not include specific ESG policies.

But he said BlackRock’s 2021 options for hedge fund Engine No. 1 in its proxy fight with energy giant ExxonMobil – among other options – was “ESG performance”. American Airlines “allowed BlackRock to continue to manage billions of (401k) plan assets in pursuit of non-economic ESG profits,” O’Connor said.

O’Connor concluded that American Airlines breached its fiduciary duty to plan participants by failing to separate “BlackRock’s ESG interests”, as well as its business goals, “resulting in cross-fertilization different from what is not allowed”. However, he said America had not breached its duty of discretion “in terms of the design and implementation of its surveillance systems”.

The judge deferred a decision on what the plan’s participants lost.

BlackRock said: “We always work independently and focus on one thing for the financial benefit of our clients. Our only goal is to increase the returns to our clients, according to their choice.”

American Airlines did not respond to a request for comment.

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