ESG investments have become a lightning rod, attracting Congressional interest and a lawsuit against American Airlines and its 401(k) Plan Committee. Plaintiff in that case argued that all ESG investments are imprudent 401(k) plan investments and questioned ESG proxy voting.
Carol Buckmann was quoted in this Bloomberg Law article analyzing the Texas federal district court decision in Spence v. American Airlines, Inc. and American Airlines Employee Benefits Committee refusing to dismiss the case. She discussed defects in the case that would most likely have resulted in dismissal of this politically-motivated lawsuit in another court. These include that no benchmark against which to measure the performance of the funds in the American Airlines investment menu was provided. Other courts have required that plaintiffs provide a reasonable benchmark to avoid dismissal.
This decision may have a chilling effect on plan fiduciaries in the short run, and generate copycat lawsuits against fiduciaries of other plans, but the American Airlines lawsuit is far from over. If plaintiff cannot provide specifics to back up the claim that these particular funds are imprudent, American Airlines should prevail. American Airlines will also be allowed to demonstrate that its investment selection process was prudent as the case moves forward. It is important to remember that ERISA doesn’t prohibit whole classes of investments. Further, the Department of Labor’s ESG regulations do not permit plan fiduciaries to ignore financial factors if deciding to make ESG-related investments.