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

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A US federal court has ruled that American Airlines has failed workers by picking BlackRock to manage part of its pension scheme, with a judge claiming the world’s largest asset manager was tainted by “ESG activism”.

The ruling by northern Texas district judge Reed O’Connor underscores how US companies face mounting legal risks over environmental, social and governance and diversity and inclusion policies.

O’Connor’s rulings come amid a culture war in the US over programmes promoting everything from racial diversity to protecting the environment. president-elect Donald Trump and allies such as Elon Musk have vigorously objected to these schemes and some companies have begun to reverse them before Inauguration Day later this month.

“This [case] is not about ESG funds at all,” said Josh Lichtenstein, a partner at law firm Ropes & Gray. He said it was one of the biggest cases in all of US retirement fund litigation to watch because “this, to me, looks like the same claim could be brought against literally any 401k plan in America”.

Conservative groups have pursued these kind of cases in recent years and have sought to hand-pick judges who they think will side with them. O’Connor, a George W Bush appointee, last month threw out Boeing’s 737 Max plea agreement with the US justice department over provisions linked to diversity, equity and inclusion.

The American Airlines class-action lawsuit, which was filed by a pilot in 2023, alleged that the carrier had breached its fiduciary duties to employees in its 401k plan by hiring investment managers “that pursue leftist political agendas through ESG strategies”. The complaint did not mention BlackRock, and the asset manager is not a party in the lawsuit.

However, O’Connor seized on BlackRock’s relationship with American Airlines as the largest investment manager for its 401k plan. The savings scheme comprised passive index funds and active funds, but did not include any ESG-specific strategies.

But he said BlackRock’s 2021 vote in favour 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 managing billions of dollars of [401k] 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 separate “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 prudence “in connection with 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