Earlier this year, anti-ESG walked away with a big win when a federal judge in Texas ruled that American Airlines breached its duty of loyalty by considering ESG factors in the company’s retirement investing. Now that win has been tempered as the court found no monetary damages for the plaintiffs in connection with this breach. At a bench trial on damages, the court found that the plaintiffs could not prove that American’s breach led to economic loss, and therefore could not recover money damages. A recent memo from Ropes & Gray breaks down the decision, stating:
“The court underscored that ERISA fiduciary breach claims in the Fifth Circuit require a demonstrated causal connection between the breach and actual economic loss to the plan and that generalized critiques of proxy voting or ESG-related engagement were insufficient. Furthermore, although there is no single methodology established under ERISA case law for the calculation of damages resulting from breach of fiduciary duty, the central requirement under any approach is establishing the difference between the investment performance of the portfolio at issue and how the portfolio would have performed in the absence of the defendants’ alleged breach.”
Despite the lack of monetary damages, American isn’t off the hook. The ruling imposed significant injunctive relief preventing American from considering non-pecuniary factors in its retirement investing. Additionally, significant restrictions were imposed concerning how American is allowed to invest, including the appointment of two independent Employee Benefit Corporation (EBC) members for the next five years. Additionally, these EBC members will oversee American’s industry membership in climate coalitions, and the company must make disclosures stating that they will not consider ESG or DEI in proxy voting or investments. It’s unclear if these injunctive restrictions are acceptable to American, or if the decision will be appealed.
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