Federal Judge BLASTS American Airlines' "Woke" ESG Retirement Plan—Diminishing Returns for Employees

American Airlines’ “woke” retirement plans just got taken behind the barn and shot, courtesy of Texas Courts. Simply put, in what’s being called the first ruling of its kind, a federal judge in Texas decided that the airline breached its fiduciary duty under federal law by letting its employee retirement plan prioritize environmental, social, and governance (ESG) goals over cold, hard returns. Spoiler alert: the court wasn’t impressed by the “save the planet” pitch at the expense of employees’ retirement savings.

In short, judge Reed O’Connor, didn’t hold back. He said that American Airlines violated the Employee Retirement Income Security Act (ERISA)—basically the Bible of corporate retirement plans—by prioritizing ESG considerations over the financial interests of its 401(k) participants. Translation: You can’t put “save the whales” stickers on investments that underperform.

What’s more is that O’Connor also pointed fingers at BlackRock,  American’s asset manager and main cheerleader for ESG investing. The airline, he said, let BlackRock use the retirement plan as a testing lab for its ESG goals, which were unrelated to maximizing returns for employees. In his own words, American’s relationship with BlackRock was “incestuous,” and not in the fun, HBO kind of way. 

(Source: Investment News) 

Naturally, this issue was brought forth back in 2023, when Bryan Spence, an American Airlines pilot decided he wasn’t cool with his retirement savings being used as a soapbox for ESG principles (and I don’t blame him). Representing more than 100,000 participants in the company’s 401(k) plan, Spence argued that ESG-focused funds underperformed compared to traditional investment options, costing employees potential gains.

And guess what? The court agreed. O’Connor backed the claim that ESG investments tend to lag behind traditional funds, noting that they “often underperform traditional investments by approximately 10%.”Oof. Talk about leaving money on the table. 

(Source: Reuters) 

Of course, this ruling isn’t just a bad day for American Airlines—it’s a signal flare in the fight over ESG investing. Conservatives have been sharpening their knives over the rise of socially conscious investing, arguing that it prioritizes political agendas over financial returns. And now, this just adds to the other separate lawsuit  from 11 Republican-led states accusing BlackRock of prioritizing climate advocacy over its fiduciary duties. In other words, ESG is becoming a four-letter word in certain circles, and this ruling isn’t going to help its PR campaign.

Looking ahead, American Airlines said it’s “reviewing the decision,” which basically means “we need a new strategy, like, yesterday”. The court hasn’t decided whether employees will receive damages yet, but if it does, this could get even messier for the airline. For BlackRock, this decision could set a precedent where we see more lawsuits challenging ESG-heavy investment plans, particularly in retirement accounts where fiduciary duty reigns supreme.

(Source: Giphy) 

In the end, sure, ESG investing may sound good in a press release, but apparently—woke agenda’s don’t feed a healthy retirement. For now, the question isn’t whether ESG is dead—it’s whether companies can figure out how to balance doing good with doing well.

Until then, American Airlines just became the poster child of what it means to be “woke” with portfolio returns—and a vital lesson in failing to stick to what they do best: Getting people from point A to point B without shoving narratives down people's throats. In the meantime, do what you will with this information and place your bets accordingly. As always, stay safe and stay frosty, friends! Until next time… 

P.S. If you want to have full access to our Insider Trader Tool and see where executives and congress members are piling their millions, all you have to do is become a Stocks.News Premium member (it’s less than the cost of a HBO Max subscription). Go here and start piggybacking the insider’s trades, there’s a reason these folks are crushing the best hedge funds to ever exist by triple digits.

Stocks.News does not hold positions in companies mentioned in the article.