American Airlines Mismanaged Employees’ Retirement Funds by Investing in ESG, Court Rules

An American Airlines passenger plane is parked at a gate at Philadelphia International Airport on Dec. 13, 2024. Photo by Daniel SLIM / AFP

A district court has ruled that American Airlines failed to prioritize the financial interests of its employees’ retirement funds by enabling fund managers to pursue environmental, social, and governance (ESG) investments.

The judgment came as part of a 2023 lawsuit filed against American Airlines and the company’s Employee Benefits Committee. The class action alleges that the defendants violated their duty of loyalty under the Employee Retirement Income Security Act, which states that fiduciaries managing retirement investments must act in the best financial interest of the participants.

The defendants are alleged to have mismanaged their employees’ retirement assets—401(k) plans—when they hired investment managers pursuing ESG policies to handle the funds, especially BlackRock.

ESG looks at nonmonetary factors while making investment decisions. This includes a company’s carbon footprint and chemical emissions, how a business addresses LGBT interests and other political initiatives, and whether a company adopts such programs in its hiring practices.

The plaintiffs said BlackRock pursued an agenda to convert their retirement plans’ core index portfolios into ESG funds and that BlackRock’s actions harmed retirement plan participants because such investments pursued socio-political outcomes rather than financial returns.

On Jan. 10, Judge Reed O’Connor from the U.S. District Court for the Northern District of Texas agreed with the plaintiffs, saying “the facts compellingly demonstrated that Defendants breached their fiduciary duty by failing to loyally act solely in the retirement plan’s best financial interests.”

The defendants allowed “their corporate interests, as well as BlackRock’s ESG interests, to influence management of the plan,” the court stated.

BlackRock had managed roughly $11 billion worth of assets under American Airlines’ employee retirement plan by the end of 2022, according to the court document.

The case was filed by Bryan P. Spence, an American Airlines pilot who is a participant in the company’s retirement plan.

The judge said ESG investments often underperform traditional investments by roughly 10 percent.

“For instance, when compared to the S&P 500 and the Russell 1000 indices in 2023, ESG funds dramatically underperformed non-ESG funds, with ESG-related funds returning about 8 percent compared to about 14 percent for both indices,” the court stated.

“BlackRock managed billions of dollars in plan assets at the same time it owned 5 percent of American stock,” making it one of the largest shareholders in the company, it stated.

BlackRock had also funded roughly $400 million of the airline’s corporate debt when the company was going through financial challenges, according to the court document.

According to Yahoo Finance, BlackRock currently owns 8.31 percent of American Airlines, with more than 54 million shares. The largest institutional shareholder was Vanguard, with 9.44 percent.

The court observed that BlackRock is known to have pursued ESG criteria as a policy and that the defendants enabled such a course of action because of the “outsized influence” BlackRock had on the company.

“For example, as a large company who consumes copious amount of fossil fuels, American was potentially susceptible to a proxy fight of its own by failing to comply with BlackRock’s climate-related demands,” the court stated.

The defendants endorsed the ESG goals of those tasked with overseeing employees’ retirement funds, had conflicts of interest with BlackRock, and also upheld a “corporate commitment” to ESG, the judge wrote, while finding that American Airlines had breached its obligatory duties to retirement plan participants.

The Epoch Times reached out to American Airlines for comment but received no reply by publication time.

BlackRock and ESG

While BlackRock has aggressively promoted ESG in recent years, it began to publicly pivot away from it in 2023 after widespread backlash.

In June 2023, BlackRock CEO Larry Fink said during a speech that he was “not going to use the word ESG because it’s been misused by the far left and the far right,” noting that he was “ashamed of being part of this conversation.”

At the time, Florida Chief Financial Officer Jimmy Patronis told The Epoch Times that Fink seemed to have “caught some heat from some folks.”

“Maybe he’s needed to try to find some way to camouflage his messaging because there’s definitely been some criticism,” Patronis said.

In his 2023 annual letter to investors, Fink called oil and gas “vital” to global energy demand, shifting from his earlier attempts to promote a climate agenda and denounce fossil fuels.

Prior to the October 2022 letter, BlackRock was downgraded by Swiss multinational investment bank UBS, with an analyst saying there was “environmental pressure to earnings and risk from the firm’s ESG positioning.”

Last year, BlackRock pulled out of the U.N. Climate Action 100+ coalition.

In March 2024, Mississippi issued an administrative order charging BlackRock with misleading investors about its support for ESG investments, thus violating the state’s securities laws.

“Investment companies will not push their political agenda on Mississippians, especially through fraudulent and deceptive means,” Michael Watson, Mississippi’s secretary of state, said in a statement at the time.

“All citizens should have the opportunity to make informed and educated decisions when investing their hard-earned money.”

Earlier this month, a BlackRock spokesperson told The Epoch Times that it was pulling out of the Net Zero Asset Managers initiative, a U.N.-backed project with more than 325 signatories that, combined, manage more than $57.5 trillion in assets. The pact aims to achieve “net zero” greenhouse gas emissions by midcentury.

According to the spokesperson, being part of the pact led to confusion regarding the company’s practices, with public officials making legal inquiries into the business. Despite its exit from the Net Zero Asset Managers initiative, BlackRock continues to back what it calls sustainable investing.

Kevin Stocklin and Tom Ozimek contributed to this report.