American Airlines pilot sues employer over ESG funds in 401(k) plan
In a class action lawsuit, the former employee alleges that 37% of his retirement savings were invested in BlackRock’s Target Date 2045 fund, which uses ESG considerations.
The war of words between a senior American Airlines pilot and his former employer over environmental, social and governance investing continues to escalate.
Bryan Spence, who is a U.S. Air Force Lieutenant Colonel and F-16 instructor, filed a class action lawsuit against the airline in the U.S. District Court for the Northern District of Texas in June, accusing it of choosing investments that he said pursued “leftist political agendas” and were “flatly inconsistent” with its fiduciary responsibility under ERISA.
He calls this act “perhaps the most severe breach of the fiduciary standard in American history,” and states that “firms whose job is to deliver investment returns are instead weaponizing retirement funds, public pensions and other investments in pursuit of nakedly ideological goals.”
In early August, American Airlines filed a motion to dismiss the claims, arguing that the pilot never was invested in the ESG funds he listed. In its motion to dismiss, American Airlines criticized the pilot for exploiting the recent politicization of sustainable funds to carry out the suit. “Plaintiff seeks to insert himself into the ongoing, politicized debate over the wisdom of ESG-themed investing,” the motion said.
Spence in turn doubled down by amending his complaint last week in U.S. District Court for the Northern District of Texas, maintaining that he was invested in some of the ESG funds listed, including nearly 37% in BlackRock’s Target Date 2045 fund. He also said American Airlines chose funds managed by American Beacon Advisors; TCW Group; Loomis, Sayles & Co.; Artisan Partners; Thompson, Siegel & Walmsley; Morgan Stanley Investment Management; and State Street Global Advisors, all of which he said focus on ESG. Fidelity Investments and Edelman Financial Engines also had been targeted in the original complaint but were dismissed in a court docket released in July.
Related: Anti-ESG funds’ are now a thing (and peaked at $376M in Q3 2022)
“Many of these funds are not branded or marketed as ESG funds; however, the actions of their investment advisors and managers give rise to the same ERISA violations as those funds that do market themselves as ESG funds,” according to the amended complaint.
Spence further alleged that American Airlines pursued an “ESG agenda that included divesting oil and gas stocks, banning plastic and requiring net zero emissions, which do not contribute to the company’s profitability or increasing shareholders’ returns. None of the proposals was supported by management at the targeted companies, and the investment managers’ votes were typically made without the approval or even the awareness of plan participants.” The American Airlines plan has more than 100,000 participants and approximately $26 billion in assets, according to the filing.
The lawsuit underscores the challenges that fiduciaries must navigate.
“Given this highly politicized backdrop, it is an understatement to say that directors, managers and other senior fiduciaries are in a delicate spot,” according to a report from Harvard Law School. “Whatever other pressures they face, directors and senior fiduciaries must ensure that managers comply with domestic and foreign reporting requirements around ESG issues. Balancing the conflicting demands from regulators, investors, shareholders, politicians and others is no easy feat.”