A pilot’s class-action lawsuit against American Airlines (AA) for allegedly investing pension funds in environmental, social, and corporate governance (ESG) funds is set to be heard on June 24 after a Texas district judge denied a request for dismissal.
The plaintiffs allege that AA—headquartered in Fort Worth, Texas—violated its fiduciary obligation to the Employee Retirement Income Security Act “by investing millions of dollars of American Airlines employees’ retirement savings with investment managers and investment funds that pursue political agendas” through ESG initiatives.
BlackRock owns more than 5 percent of American Airlines stock and roughly $400 million of AA’s fixed-income debt, according to the order.
The lawsuit argues that because BlackRock focuses on sociopolitical outcomes rather than on financial returns, AA’s investment harmed the financial interest of AA employees.
It alleges that many of the ESG funds AA includes in its 401(k) employee pension fund are “more expensive for Plan participants to own compared with similar non-ESG investment funds, underperform financially compared with similar non-ESG investment funds, and engage in shareholder activism to achieve ESG policy agendas rather than maximize the risk-adjusted financial returns for Plan participants.”
The complaint further alleges that AA chose investment options that violated the Employee Retirement Income Security Act regulations by choosing plans that focus on nonfinancial objectives, rather than “the exclusive purpose of maximizing financial returns for investors.”
“A prudent fiduciary would have removed these funds, but the Plan’s fiduciaries have failed to do so, costing the Plan participants millions of dollars in lost earnings they would have earned had the Plan’s fiduciaries offered more prudent investments that were readily available at the time Defendants selected and retained the ESG funds at issue,” the complaint stated.
AA’s Response to Proposed Findings of Fact
Among AA’s detailed responses to the allegations, the company disputes what the complaint says constitutes investing in ESG, calling it “a subject of debate among industry professionals” that “can be viewed as encompassing many different investment approaches with various objectives.”AA also disputes the complaint’s claim that ESG investing underperforms by stating that it’s irrelevant and unsupported by evidence.
AA also disputes the claim that BlackRock was its “largest investment manager,” calling the phrase vague. It also disputes the claim that it failed to monitor BlackRock’s management of funds and argues that its financial investments were made with employee knowledge.
“Defendants do not dispute that, as the result of participants’ decisions as to how to allocate their individual accounts, a greater percentage of the Plans’ assets have been invested through BlackRock than with any other manager,” AA says.
In response to an allegation that AA is “fully committed to ESG strategy as a company,” AA says in its list of disputes that this claim is “vague and unsupported by evidence.”
“American pursues certain ESG-related initiatives in a corporate capacity, such as seeking to reduce emissions and maintain a diverse workforce,” AA says.
However, it argues, those initiatives, which “are commonplace among America’s largest corporations,” didn’t come into play with the pension fund investment plans.
