A new entrant in the political showdown related to Environmental, Social and Governance (ESG) focused investing exists. An American Airlines, Inc. pilot filed a class action complaint in June against the airlines, Fidelity Investments, and Edelman Financial Engines, alleging millions in losses for poor performance and excessive fees linked to ESG strategies.
The complaint alleges that the “unlawful decision to pursue policy goals over the financial health of the plan is not only flatly inconsistent with defendant responsibilities, but it also jeopardizes the retirement security of hundreds of thousands of American Airlines Employees.” The complaint notes that the ESG funds included in the plan are more expensive for participants than a similar non-ESG investment option and that the plaintiff suffered financial damages due to the investment choices.
This contradicts the DOL-issued guidance that allows ESG factors to be considered when selecting investment options within an ERISA-covered retirement plan. American Airlines filed a motion to dismiss the lawsuit on August 4, noting that the ESG-related funds were only available through the self-directed brokerage account window that the plaintiff had not invested in.
The complaint isn’t specific on exactly which funds underperformed or if American Airlines Plan itself is even directly invested in all the ESG funds singled out in the complaint. After the motion to dismiss was filed, the judge set a trial date for June 2024, so it will be interesting to see if this case will continue to move forward. However, if the plaintiff cannot point to specific funds offered within the plan that he was invested in, it may be difficult to prove standing to move forward.
Despite the DOL-issued guidance on ESG factors, I believe this is where fiduciaries get caught in political issues. How this will continue to influence future litigation and legislative decisions will be interesting to watch.
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