A class-action lawsuit against American Airlines filed by employees opposed to Environmental, Social and Governance (ESG) funds used in their 401(k)s could redefine how employers handle ESG investing and respond to further litigation.
The American Airlines suit, filed in federal court in Texas, is one of the first in the private sector to focus on the use of ESG funds in employees’ retirement accounts. The lawsuit’s lead plaintiff, pilot Bryan Spence, alleges that American mismanaged employees’ retirement savings by investing with fund managers who “pursue leftist political agendas” through ESG strategies, proxy voting and shareholder activism.
In 2021, Texas passed two laws to ban municipalities from doing business with banks that have ESG policies. The legislation was aimed at protecting Texas’ reliance on oil and gas and firearm industries, but research from economists at Wharton and the Federal Reserve Bank of Chicago suggests that Texas cities could end up paying $300 million to $500 million in additional interest as a result.
Public pensions in Texas are already barred from investing in funds run by asset management firms such as BlackRock. Supporters of those bills claim that these firms “boycott” Texas energy companies through their ESG policies, despite the banned funds investing a combined $5 billion in oil and gas, according to a Bloomberg News analysis.
