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A US federal court has ruled that American Airlines failed workers by choosing BlackRock to manage part of its pension scheme, with a judge claiming that the world’s largest asset manager was tainted by ” ESG activism”.

The ruling by northern Texas district judge Reed O’Connor highlights how US companies face growing legal risks environmental, social and governance and diversity and inclusion policies.

O’Connor’s rulings come amid a culture war in the US over programs that promote everything from racial diversity to environmental protection. elected president Donald Trump and allies like Elon Musk have strongly opposed these plans and some companies have begun revising them before Inauguration Day later this month.

“This (case) is not about ESG funds,” said Josh Lichtenstein, a partner at law firm Ropes & Grey. He said this is one of the biggest cases in all of US retirement fund litigation to watch because “this, to me, looks like the same claim that could be brought against literally any 401k plan in America”.

Conservative groups have pursued these types of cases in recent years and sought to elect judges they thought would side with them. O’Connor, an appointee of George W Bush, was last month rejected The Boeing 737 Max request agreement with the US department of justice on provisions related to diversity, equity and inclusion.

The American Airlines class-action lawsuit, filed by a pilot in 2023, alleges the carrier breached fiduciary duties to employees in its 401k plan by hiring investment managers “pursuing leftist political agendas through ESG strategies”. The complaint does not mention BlackRock, and the asset manager is not a party to the lawsuit.

However, O’Connor seized BlackRock’s relationship with American Airlines as the largest investment manager for its 401k plan. The savings scheme consists of passive index funds and active funds, but does not include any ESG-specific strategies.

But he said BlackRock’s 2021 vote in favor of hedge fund Engine No. 1 in its proxy fight with energy giant ExxonMobil – among other votes – amounted to “ESG activism”. American Airlines “allowed BlackRock to continue to manage billions of dollars of (401k) plan assets in pursuit of non-economic ESG interests,” O’Connor said.

O’Connor ruled that American Airlines violated its fiduciary duty of loyalty to plan participants by failing to separate “BlackRock’s ESG interests,” as well as its own corporate goals, “which resulted in of not allowing cross-pollination”. However, he said that American did not violate the duty of care “in relation to the design and implementation of its processes for monitoring the plan”.

The judge deferred a decision on whether the plan participants suffered any losses.

American and BlackRock did not respond to requests for comment.

Additional reporting by Claire Bushey