American Airlines' ESG-linked pension investments breached fiduciary duty to employees, U.S. court rules
February 18, 2025
A Texas judge has ruled that American Airlines breached its duty of loyalty to employees by prioritizing environmental, social and governance (ESG) investment goals over the financial interests of its retirement plan members.
The ruling came following a four-day hearing in a class action brought by members of the airline’s 401(k) plan claiming that the airline breached its fiduciary duties of loyalty and prudence. The Federal Court judge agreed with the plaintiffs that their employer had violated its fiduciary duty of loyalty under the U.S. Employee Retirement Income Security Act.
Although the plan at issue did not contain any ESG-specific investment options, the judge pointed to the investment management role of BlackRock, a firm he wrote is involved in “ESG activism.” The failure to separate the airline’s own corporate interests, as well as “BlackRock’s ESG interests”, from the airline’s management of the plan had resulted in an “impermissible cross-pollination” of interests and a breach of the duty of loyalty. Still, the judge found that the airline had not breached its duty of prudence in connection with the design and implementation of its processes for monitoring the plan because it acted according to prevailing industry practices.
The case now moves on to the damages phase, when the same judge will decide whether class members suffered any financial harm and what level of compensation their employer must pay as a result.
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