Last Major US Company Exits 'ESG' Silliness Because a Court Rules It Is Illegal and Congress Hates It

A federal judge ruled Friday that American Airlines' 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.

Federal law governing retirement plans doesn’t permit this type of investment strategy “no matter how noble it might view the aim,” O’Connor wrote in a 70-page decision.
The judge said that American’s “incestuous relationship with BlackRock and its own corporate goals disloyally influenced administration of the Plan.”

If BlackRock thought there was safety in numbers, they were wrong. The "everybody's doing it" defense didn't carry a lot of weight.

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. Accordingly, Plaintiff prevails on the merits of his breach of loyalty claim but not on the breach of prudence claim.

No matter how this one lawsuit turns out, it seems to have driven the stake into the heart of the profoundly evil ESG investing craze that once seemed on the verge of exerting influence over every sector of our economy via activist and leftwing whacko pension fund managers.

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.

Goldman Sachs Group Inc.: December 6, 2024.
Wells Fargo & Co.: December 20, 2024.
Citigroup Inc: December 31, 2024.
Bank of America Corp.: December 31, 2024
Morgan Stanley: January 2, 2025.
JPMorgan Chase & Co.: January 7, 2025.

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.

While elections bring uncertainty, one antitrust issue is certain to play a prominent role regardless of the outcome; namely, the future of Environment, Social & Governance (ESG) initiatives.
One need look no further than the political theater that played out this summer with the House Judiciary’s investigation into antitrust concerns with ESG initiatives. In June, the House Judiciary Committee released an interim staff report detailing what it claimed was direct evidence of a “climate cartel” comprised of “left-wing activists and major financial institutions” that allegedly “collude to impose radical environmental, social and governance goals on American companies,” including decarbonization and net-zero emissions.

Trump's incoming Federal Trade Commission chairman, Andrew Ferguson, has said one of his priorities is to “prosecute collusion on DEI [diversity, equity, and inclusion], ESG [environmental, social, and governance], and advertiser boycotts.” Combine the court decision and climate on the Hill with the new head of the Department of Justice's Antitrust Division, Gail Slater, a former colleague of Ferguson, and you have a huge warning sign that says, get out of ESG now and stay far away.

Though ESG is still a big deal in Europe, who cares?

This month, two body blows were delivered to the left in their march through corporate America. Not only is ESG basically dead because it may be illegal to use those factors in asset management, but DEI is definitely on the ropes, having been battered in court (see Fifth Circuit Deals Blow to DEI on Wall Street – RedState and Supreme Court Rejects Race-Based College Admissions—But How Did We Get Here? – RedState) and the boardrooms (Meta Ditches DEI Programs 'Effective Immediately' and UNC-Chapel Hill Led Race-Based Admissions Battle, Now Trustees Ban It – RedState).