Activist Judge Rules Against American Airlines in 401k Suit

A Texas district judge has ruled that American Airlines had breached its fiduciary duty by allowing its investment manager (BlackRock) to consider certain ESG factors in the management of its retirement assets.

The class action case was initiated in June 2023 by an American Airlines pilot on behalf of certain participants in the company retirement plan. The case stated that American had violated the duties set out by the Employee Retirement Income Security Act (ERISA) to base investment decisions solely on financial interests by “investing millions of dollars of American Airlines employees’ retirement savings with investment managers and investment funds that pursue leftist political agendas through environmental, social and governance (‘ESG’) strategies, proxy voting, and shareholder activism—activities which fail to satisfy these fiduciaries’ statutory duties to maximize financial benefits in the sole interest of the Plan participants”.

In his final ruling in January 2025, the conservative District Judge Reed O'Connor concluded that American had indeed failed in its legal duty “by allowing their corporate interests, as well as BlackRock’s ESG interests, to influence the management of the plan”. At this point, no actual losses have been identified as a result of these actions.

The case had many complexities but at its heart the court seemed most concerned about what it called the “incestuous” relationship between American and BlackRock. O’Connor claimed American’s “lack of accountability” regarding BlackRock’s ESG activities ultimately created a “conflict of interest” between such activities, American’s corporate goals, and American’s duty to maximise financial returns for employees in its retirement plan.

It’s worth noting that American’s retirement plan did not include any ESG-focused funds. The judge’s key complaint was instead against the management of funds by an investment manager known for supporting ESG and the delegation of proxy voting authority to that manager. As delegating proxy voting is considered a common industry practice, this ruling raises concerns that other actions may be taken against corporates and investment managers for engaging in what have until now been considered standard practices.

A Politically Motivated Ruling

The American Airlines case is the latest in the anti-ESG movement that is still coursing through US politics, legal and corporate affairs.

The judge’s ruling makes a strong statement about identifying ESG issues as not relevant to financial risk, which will only serve to deepen the divide on what constitutes fiduciary duty. Once you strip the politics out, it’s impossible to argue that climate risk is not financial risk, and essential to consider as a fundamental part of a fiduciary duty. We, along with industry bodies, investors, actuaries and other legal professionals maintain that the ultimate cost of climate risk is very high. We only need look to the LA fires to understand the financial impact of ESG issues in business and investment decisions.  

The ruling highlights the influence of ongoing culture wars and the impact of strong personal and politically driven opinions, especially in the US. This case has more to do with conservative political objectives than any misstep on the part of American Airlines. O’Connor is known for championing conservative causes and opposing liberal and ESG related issues. He recently caused controversy by focusing on the Department of Justice’s diversity, equity and inclusion (DEI) policy in ruling to reject a plea deal by Boeing relating to its culpability for 2 major plane crashes.

The AA case makes a compelling headline, but we anticipate this ruling will ultimately be appealed, as the case seems shaky on the merits. However, we can probably expect further conservative attempts to undermine ESG; and more litigation.

We may also see further downplaying and reframing of ESG activities. We have already seen examples of US based investment managers replacing “ESG” with “sustainability”, replacing “biodiversity” with “resource constraints” and minimising ESG content on websites, without changing underlying policies and processes.

While hard to ignore physical climate risks, we may see a potential de-prioritisation of transition risks in the US, especially if there is no plan to actually transition – an approach that risks the US being left behind on transition-related competitive advantage, such as transition technology.  

Ultimately, we anticipate that US (and non-US) investors who care about ESG will dig their heels in deeper, to compensate in some way for the pushback from a vocal minority.

If you’d like to know more about this case and how you or your organisation should respond, please get in touch.