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A federal judge ruled Friday that American Airlines's pension fund had violated the law by making investment decisions using criteria other than the interests of the plan beneficiaries. The decision by Judge Reed O'Connor, a George Bush appointee serving the Northern District of Texas, comes from a decision by American Airlines management to allow the pension fund to be managed by BlackRock, which in turn used Environmental, Social, and Governance principles rather than financial performance to guide investment. //
For the reasons explained below, the Court concludes that the facts compellingly demonstrated that Defendants breached their fiduciary duty by failing to loyally act solely in the retirement plan’s best financial interests by allowing their corporate interests, as well as BlackRock’s ESG interests, to influence management of the plan. However, the facts do not compel the same result for the duty of prudence. Defendants acted according to prevailing industry practices, even if leaders in the fiduciary industry contrived to set the standard. This is fatal to Plaintiff’s breach of prudence claim. //
The day before Judge O'Connor ruled that BlackRock had sacrificed the pension payout to plan beneficiaries on the altar of ESG investing, BlackRock, the world's largest asset manager, with $11.5 trillion in assets under management, announced its withdrawal from Net Zero Asset Managers Initiative, an international group of asset management companies "committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner."
This makes BlackRock the latest asset manager to reconsider the business model of screwing over investors in exchange for invitations to all the right events. //
The exits are clearly linked to the American Airlines lawsuit, which imposes liability for damages on asset managers for breaching their fiduciary responsibility. One can't ignore the effect of an incoming Congress that is skeptical of ESG. Last summer, the House Judiciary Committee labeled the ESG movement as violating antitrust law.
