Judge rules American Airlines unlawfully considered ESG factors in 401(k) plan

January 15th, 2025

A Texas federal judge has ruled that American Airlines violated federal law by allowing ESG factors to influence its employee retirement plan, Reuters reports.

Judge Reed O’Connor determined that American Airlines breached its fiduciary duty of loyalty by permitting asset manager BlackRock to consider environmental factors when managing its 401(k) plan.

This violated the duty to base investment decisions solely on financial considerations and breached the Employee Retirement Income Security Act (ERISA) requirement to prioritise the best interests of plan members.

The ruling followed a four-day non-jury trial in June, brought as a class action by American Airlines pilot Bryan Spence on behalf of over 100,000 participants in the retirement plan.

Judge O’Connor stated he would determine later whether class members experienced financial harm and if American Airlines would be required to pay damages.

He said: "The evidence made clear that [American’s] incestuous relationship with BlackRock and its own corporate goals disloyally influenced administration of the plan."

A BlackRock spokesperson said: "We always act independently and with a singular focus on what is in the best financial interests of our clients. Our only agenda is maximizing returns for our clients, consistent with their choices."

The Department of Labor first put forward a rule amending ERISA to allow retirement plan fiduciaries to consider ESG factors when making investment decisions in January 2023.

However, the rule faced backlash as Senate and House Republicans filed joint bills aimed at nullifying it and blocking its implementation.

After efforts to overturn the rule through legislation were unsuccessful, a coalition of 26 Republican state attorneys general filed an appeal, arguing that the rule undermines essential protections for retirement savers.

Minerva’s blog focuses on the latest developments in ESG investing and stewardship. Minerva is a global provider of sustainable stewardship solutions with over 25 years of expertise. Minerva empowers investors by providing essential tools, including ESG research and data, enabling them to navigate the intricate landscape of stewardship and proxy voting, whilst ensuring their decisions are well-informed and aligned with sustainable principles.

You can read more of our articles by clicking here.