Court Determines American Airlines Breached Its Fiduciary Duty by Prioritizing ESG Goals in 401(k)

American Airlines jets at Miami International Airport. Photo: J. Albert Diaz/ALM

On Friday, a federal judge in Texas ruled that American Airlines breached its fiduciary duty, under the Employee Retirement Income Security Act (ERISA), by basing investment decisions for its $26 billion employee retirement plan on environmental, social, corporate governance (ESG), and other non-financial factors and not on the “best financial benefit” of retirement plan participants, in the biggest victory yet questioning ESG investing. U.S. District Judge Reed O’Connor said American Airlines had breached its legal duty to make investment decisions based solely on the financial interests of 401(k) plan beneficiaries by allowing BlackRock, its asset manager and a major shareholder, to focus on ESG factors. The plaintiffs “proved by a preponderance of the evidence” that American acted “with an intent to benefit a party other than plan participants,” Judge O’Connor wrote.

Last week, BlackRock, which is not involved in the lawsuit, announced that it officially dropped out of the Net Zero Asset Managers initiative, a coalition of top corporations that pledge to reach zero carbon emissions by 2050. Over the past month, Morgan Stanley, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and JP Morgan Chase have all withdrawn from the climate coalition.