American Airlines is facing a class-action lawsuit filed by a pilot, Bryan Spence, who alleges that the airline violated its fiduciary duties by investing pension funds into environmental, social, and governance (ESG) funds. The case revolves around the claim that American Airlines invested retirement savings in funds that pursue political agendas through ESG initiatives, thereby lowering the value of employees’ investments. The pilot argues that these investments were imprudent as ESG funds are known for their poor performance due to the detrimental effects of activism on stock prices.
The district judge, Reed O’Conner, granted the pilot’s request for a class-action lawsuit as he found similarities in the alleged ERISA violations. He states that even if the damages are diverse, finding in favor of the pilot on his ERISA claims would also resolve the claims of the entire class. This means that all plaintiffs in the class-action lawsuit would receive the same remedy for damages.
The complaint highlights that ESG funds are typically more expensive for pension enrollees and underperform financially compared to non-ESG funds. Instead of maximizing risk-adjusted financial returns, ESG funds engage in shareholder activism to achieve ESG policy agendas. The complaint also argues that American Airlines selected and included funds managed by investment companies that pursue ESG policy agendas through proxy voting and shareholding activism. Many of these funds are not marketed as ESG funds, but their actions give rise to the same ERISA violations.
Bryan Spence, the pilot, claims to have suffered specific financial damages as a result of American Airlines’ unlawful conduct, and the pension plan itself has suffered millions of dollars in losses due to the airline’s fiduciary breaches. The complaint defines ESG as an investment strategy aimed at influencing societal changes and outlines three criteria used to evaluate companies for ESG investing, including environmental commitments and support for diversity, equity, and inclusion (DEI) agendas.
American Airlines is fully committed to its ESG strategy, viewing it as a key part of its success and long-term strategy. The airline sets DEI goals and strives to achieve net zero emissions by 2050. It has been recognized by the Human Rights Campaign for its efforts in creating an inclusive workplace for LGBTQ individuals.
However, the airline industry as a whole has faced criticism for prioritizing DEI initiatives over safety and performance. American Airlines has experienced complications this year, including issues with the braking system on one aircraft and a mechanical problem during a flight. In January, Elon Musk, CEO of SpaceX and Tesla, criticized the industry for prioritizing DEI hiring over safety.
The lawsuit against American Airlines highlights the ongoing debate surrounding ESG investments and their impact on fiduciary duties. It raises questions about the financial performance of ESG funds and the potential conflicts between pursuing political agendas and maximizing returns for pension enrollees. As the case progresses, it will be important to consider the evidence presented and the potential implications for other companies that have incorporated ESG strategies into their investment decisions.
