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A federal judge in one of the country’s most conservative district courts ruled Friday that American Airlines illegally incorporated environmental and sustainable governance (ESG) factors into its employee retirement plan.
In a 70-page ruling following a four-day non-jury trial, Judge Reed O’Connor of the Northern District of Texas ruled that the airline breached its fiduciary duty of loyalty by letting the asset manager BlackRock weighs environmental factors in 401(k) funds. .
O’Connor, a George W. Bush appointee, wrote that allowing ESG investing violated the requirement of the Employee Retirement Income Security Act (ERISA) that such investments must prioritize the best interests of members of the plan
“ERISA does not allow a fiduciary to pursue a non-pecuniary interest no matter how noble the goal,” O’Connor wrote, writing that the airline’s “incestuous relationship with BlackRock and its own corporate goals unfairly influenced in the administration of the Plan.
He rejected a separate argument that the plan violated ERISA’s prudence requirement, writing that the investments were in accordance with “prevailing industry standards,” regardless of his views on the practice.
Conservative plaintiffs have frequently brought cases before O’Connor on high-profile issues, including a 2016 challenge to Obama-era anti-discrimination rules regarding transgender students and a 2022 court order against the mandate of Department of Defense COVID-19 vaccine for Navy SEALs. His ruling could favor the first major court test of private ESG investing under the law.
The ruling comes as conservatives have been highly critical of the ESG positions in particular and generally on social and political issues of corporations and financial institutions. In 2023, President Biden issued his first veto against a Congressional Review Act (CRA) resolution blocking a Labor Department rule allowing ESG investing. Then-Sens. Joe Manchin (IW.V.) and Jon Tester (D-Mt.) joined all Senate Republicans in voting for the measure.
“We always act independently and with a singular focus on what is in the best financial interest of our clients. Our sole agenda is to maximize returns for our clients, consistent with their choices,” a BlackRock spokesperson told The Hill in a statement.
The Hill has reached out to American for comment.
Updated at 10:45am EST.
