A federal judge in Texas has ruled that American Airlines violated federal law by considering environmental, social, and governance (ESG) factors in its investment decisions for its employee retirement plan. The ruling, made by U.S. District Judge Reed O’Connor, is the first of its kind and comes amid growing backlash by conservatives to socially-conscious investing.
O’Connor said that American had breached its legal duty to make investment decisions solely based on financial interests by allowing its asset manager, BlackRock, to prioritize ESG factors. The judge ruled after a four-day trial in June and will decide later whether class members suffered financial harms and American must pay damages.
The lawsuit was brought by American pilot Bryan Spence on behalf of over 100,000 participants in the retirement plan, who claimed that American had violated the Employee Retirement Income Security Act (ERISA) by failing to remain loyal to plan participants and to prudently oversee their assets.
The ruling comes as the Biden administration has allowed 401(k) and other plans to consider ESG factors as a “tiebreaker” between financially equal investment options, a rule that could be challenged by Republican-led states and other opponents of socially-conscious investing.
American Airlines has said it is reviewing the decision, while lawyers for Spence did not immediately respond to requests for comment. BlackRock, which is not involved in the lawsuit, was recently sued by 11 Republican-led states who claim the firm violated federal antitrust law through climate activism that reduced coal production and caused energy costs to increase.
