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A US federal court has ruled that American Airlines failed workers by choosing BlackRock to manage part of its pension scheme, with a judge claiming the world’s largest asset manager was tainted by “ESG activism”.
The decision by Northern Texas District Judge Reed O’Connor underscores how American companies face growing legal risks over environmental, social and governance, and diversity and inclusion policies.
O’Connor’s decisions come amid a culture war in the US over programs that promote everything from racial diversity to environmental protection. President-elect Donald Trump and allies like Elon Musk have strongly opposed the schemes, and some companies have begun canceling them ahead of Inauguration Day later this month.
“This (case) has nothing to do with ESG funds,” said Josh Lichtenstein, a partner at law firm Ropes & Gray. He said it was one of the biggest cases in all of US pension fund litigation to watch because “this, to me, seems like the same claim could be brought against literally every 401k plan in America “.
Conservative groups have pursued these types of cases in recent years and sought to handpick judges they think will side with them. O’Connor, a George W Bush appointee, last month rejected Boeing’s 737 Max plea deal with the US justice department over provisions related to diversity, equality and inclusion.
The American Airlines class-action lawsuit, which was filed by a pilot in 2023, alleged that the company breached its fiduciary duties to employees in its 401k plan by hiring investment managers “who pursue left-wing political agendas through ESG strategies.” The complaint did not name BlackRock, and the asset manager is not a party to the suit.
However, O’Connor seized BlackRock’s relationship with American Airlines as the largest investment manager for its 401k plan. The savings scheme included passive index funds and active funds, but did not include any specific ESG strategies.
But he said BlackRock’s vote in 2021 in favor of hedge fund Engine No. 1 in its proxy fight with energy giant ExxonMobil — among other votes — amounted to “ESG activism.” American Airlines “allowed BlackRock to continue to manage billions of dollars (401K) of plan assets in pursuit of non-economic ESG interest,” O’Connor said.
O’Connor ruled that American Airlines had breached its fiduciary duty of loyalty to plan participants by failing to share BlackRock’s “ESG interests” as well as its own corporate goals, “resulting in impermissible cross-pollination.” However, he said American had not breached its duty of care “with respect to the design and implementation of its processes for monitoring the plan”.
The judge deferred ruling on whether plan participants suffered any losses.
American and BlackRock did not respond to requests for comment.
Additional reporting by Claire Bushey
