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Federal Judge Certifies Class Objecting to ESG Investments by Retirement Fund

On May 22, 2024, Judge O'Connor (N.D. Tex.) ordered that the plaintiffs claiming that investment managers breached their fiduciary duty due to their ESG-focused investing be certified as a class for purposes of the litigation.  This decision is not especially surprising, particularly since the same judge denied the defendant's motion to dismiss in this same case about two months ago, indicating that the allegations had merit (at least from the judge's perspective).  And, as the court itself noted, “[c]lass certification is routine in ERISA cases.”

That said, this ruling by the court is still significant, as it constitutes a continued progression of this case, which is a securities class action based upon the alleged fault of investment managers in relying upon ESG factors when investing.  Thus, the developments in this case have particular resonance for the various pending actions based upon a similar theory (or the converse), and could impact future litigation.  In particular, rulings in this case at the summary judgment stage or later may present useful guidance for plaintiffs considering similar lawsuits, or for defendants confronting the prospect of liability.

A Texas federal judge on Wednesday certified a class of pilots accusing American Airlines of packing its $26 billion retirement plan with investments that focused too heavily on environmental, social and governance factors, like climate change, and too little on financial returns. U.S. District Judge Reed O'Connor, in a 24-page order, granted American Airlines pilot Bryan Spence's motion to certify a class of potentially 100,000 plan participants and beneficiaries who say the airline gave retirement plan assets to fund managers, like BlackRock Inc., which then engaged in environmental, social and governance, or ESG, activism by casting proxy votes that hurt plan assets invested in energy stocks.

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