In January, a federal judge in Texas ruled that American Airlines violated its ERISA duties by not focusing “on the best financial benefit” for its 401(k) plan, in the biggest victory yet in a case involving environment, social and governance (ESG) investing. This was quickly followed by a letter sent by a coalition of 22 Republican state finance officials to the acting heads of the Securities and Exchange Commission and the Department of Labor, citing that fiduciaries are breaching their duties with regard to ESG.
However, on Wednesday, a coalition of 17 Democratic city and state financial officials pushed back by sending a letter to Mark Uyeda, acting head of the SEC and Vince Micone, acting head of the DOL, urging the agencies to defend their commitment to protecting fiduciaries’ ability to exercise professional judgement and consider real long-term financial risks.
“We urge the SEC and DOL to uphold their commitment to protecting the ability of fiduciaries to exercise their professional judgment in assessing long-term financial risks,” the letter read. “Efforts to politicize investment management and restrict fiduciary discretion threaten the financial security of millions of retirees.”
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In the American Airlines case, Judge Reed O’Connor said the company had breached its legal duty to make investment decisions based solely on the financial interests of 401(k) plan beneficiaries by allowing BlackRock, its asset manager and a major shareholder, to focus on environmental, social and corporate governance (ESG) factors. The plaintiffs “proved by a preponderance of the evidence” that American acted “with an intent to benefit a party other than Plan participants,” he wrote.
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The judge’ decision stems from a class action lawsuit, Spence v. American Airlines, filed by Bryan Spence, senior AA pilot, against the airline in June 2023, on behalf of more than 100,000 participants in the plan. The lawsuit accused the airlines of choosing investments that he said pursued “leftist political agendas” and were “flatly inconsistent” with its fiduciary responsibility under ERISA. The former employee alleged that 37% of his retirement savings were invested in BlackRock’s Target Date 2045 fund, which uses ESG considerations.
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The American Airlines decision “fails to reflect the fundamental reality of long-term investing,” read the letter from the Democratic coalition of officials from Connecticut, Colorado, Delaware, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, Oregon, Rhode Island, Vermont and Washington. “Fiduciaries are not speculators—they are stewards of trillions of dollars in assets that must sustain retirees for decades. The risks associated with climate change, governance failures, and other systemic issues are not speculative concerns but present-day financial realities affecting market valuations, insurance costs, supply chains, and infrastructure resilience.”
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In their Jan. 28 letter to the SEC and DOL, Republican officials wrote the American Airlines officials “breached their fiduciary duty by failing to … act solely in the retirement plan’s best financial interests by allowing … BlackRock’s ESG interests to influence management of the plan.”
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