A federal judge in Texas ruled that American Airlines violated federal law by making investment decisions for its employee retirement plan based on environmental, social, and other non-financial factors. This decision, by U.S. District Judge Reed O’Connor, comes amid growing conservative backlash against socially-conscious investing.

Judge O’Connor stated that American Airlines breached its legal duty by allowing BlackRock, its asset manager, to prioritize environmental, social, and corporate governance (ESG) factors over the financial interests of 401(k) plan beneficiaries. He described the relationship between American Airlines and BlackRock as “incestuous,” suggesting that it disloyally influenced the administration of the retirement plan.

BlackRock responded by asserting that it always acts independently and focuses solely on maximizing returns for its clients. The ruling followed a four-day non-jury trial in June, initiated by American pilot Bryan Spence on behalf of over 100,000 retirement plan participants.

American Airlines is reviewing the decision. BlackRock, which recently left an environmentally focused investor group under political pressure, is not involved in this lawsuit. The case is part of a broader debate over ESG investing, with BlackRock and other firms facing lawsuits from Republican-led states alleging violations of federal antitrust law through climate activism.

Spence’s lawsuit, filed in 2023, claimed that American Airlines violated the Employee Retirement Income Security Act (ERISA) by failing to remain loyal to 401(k) plan participants and prudently oversee their assets. Judge O’Connor rejected American’s attempt to dismiss the lawsuit, paving the way for the trial. While the judge found that American breached its duty of loyalty, he noted that the company’s decisions did not violate its duty of prudence, as they aligned with prevailing industry standards.