A Texas district judge has ruled that American Airlines broke federal laws and let down employees who invested in the company’s 401(k) plan by pushing ‘woke’ environmental, social, and governance policies.
The class action lawsuit was filed in June 2023 by Bryan P. Spence, a veteran pilot who is also a Lieutenant Colonel in the U.S. Air Force and F-16 instructor at the Naval Air Station Joint Reserve Base in Fort Worth, Texas, who accused American Airlines of pursuing “leftist political agendas.”
American Airlines operates one of the largest 401(k) plans in the United States, with around 100,000 members and assets of more than $26 billion, but Spence alleged that the funds were being mismanaged and that investors were suffering financial harm.
Examples of ESG policy include efforts to reduce climate change and sustainability initiatives, LGBTQI+ interests, racial and gender diversity, and executive pay and diversity in leadership. ESG investments were pushed and managed by BlackRock, the world’s largest investment management firm, despite the fact that they might not bring about the best returns.
On Friday, District Judge Reed O’Connor concluded that the “facts compellingly demonstrated that Defendants [American Airlines] breached their fiduciary duty by failing to loyally act solely in the retirement plan’s best financial interests by allowing their corporate interests, as well as BlackRock’s ESG interests, to influence the management of the plan.”
O’Connor said that BlackRock had “couched its ESG investing in language that superficially pledged allegiance to an economic interest. But BlackRock never gave more than lip service to show how its actions were actually economically advantageous to its clients.”
The case, however, is far from over. The two sides must now submit evidence to the court to determine what losses, if any, have occurred as a result of BlackRock’s and American’s ESG investments in the 401(k) plan.
They must also provide evidence of a direct link between ESG investments and financial underperformance and how that affected members of the retirement plan.
The two parties have until the end of January to submit this evidence, and the court will then decide whether any financial losses actually occurred. Even if the court doesn’t rule that financial losses did occur, it could still impose an injunction, preventing American Airlines from investing in ESG policies in the future.
The shifting political landscape could, of course, mean that American Airlines voluntarily drops ESG investments, just as a slew of major corporations have dropped DEI initiatives in recent months.
For its part, BlackRock has performed a spectacular u-turn on ESG investments, exiting the United Nations-sponsored Net Zero Asset Managers initiative. BlackRock cited legal action as one of the reasons for its decision to drop ESG investments.
