A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/usa-expat-pensions
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
B] The Issue
The GOP has declared war on ESG impacting pension plan funding. Interesting to see how this perspective might impact legal decisions:
A federal judge in Texas ruled that American Airlines violated federal law by basing investment decisions for its employee retirement plan on environmental, social and other non-financial factors. The ruling by U.S. District Judge Reed O’Connor appeared to be the first of its kind amid growing backlash by conservatives to an uptick in socially-conscious investing.
C] Motivation
O’Connor said American had breached its legal duty to make investment decisions based solely on the financial interests of 401(k) plan beneficiaries by allowing BlackRock, its asset manager and a major shareholder, to focus on environmental, social and corporate governance (ESG) factors. “The evidence made clear that [American’s] incestuous relationship with BlackRock and its own corporate goals disloyally influenced administration of the Plan,” wrote O’Connor, an appointee of Republican former President George W. Bush.
D] Reactions
A BlackRock spokesperson said: “We always act independently and with a singular focus on what is in the best financial interests of our clients. Our only agenda is maximizing returns for our clients, consistent with their choices.”
The judge ruled after holding a four-day non-jury trial in June, in a class action by American pilot Bryan Spence on behalf of more than 100,000 participants in the retirement plan. O’Connor said he would decide later on whether class members suffered financial harms and American must pay them damages.
American said in a statement that it was reviewing the decision. Lawyers for Spence did not immediately respond to requests for comment. BlackRock, which on Thursday said it was leaving an environmentally focused investor group under pressure from Republican politicians, is not involved in the lawsuit.
In November, BlackRock and two rival asset managers were sued by 11 Republican-led states who claim the firms violated federal antitrust law through climate activism that reduced coal production and caused energy costs to increase. BlackRock called the claims baseless.
Spence sued American in 2023, saying it had violated the federal Employee Retirement Income Security Act (ERISA) by failing to remain loyal to 401(k) plan participants and to prudently oversee their assets. O’Connor last February rejected American’s claims that the lawsuit should be dismissed because Spence could not show that the 401(k) plan had underperformed, paving the way for a trial.
On Friday, the judge said that American had breached its duty of loyalty to retirement plan participants. But the company’s decisions did not violate its duty of prudence, O’Connor said, because it was acting according to prevailing industry standards. O’Connor is known for frequently ruling in favor of conservative litigants challenging laws and regulations governing guns, LGBTQ rights and healthcare.
E] Biden Rule
The Biden administration in 2023 adopted a rule allowing 401(k) and other plans to consider ESG factors as a “tiebreaker” between financially equal investment options. The rule replaced a regulation adopted during Republican President-elect Donald Trump’s first administration barring the consideration of any non-financial factors, which could be resurrected after Trump takes office for the second time later this month.
A Texas federal judge is currently considering a legal challenge to the Biden administration rule by 25 Republican-led states and oil drilling company Liberty Energy.
F] Finally
The last thing has not been said about if or to what extent ESG should be allowed to impact pension plans investments. Very interesting is the idea that it should be permitted if it can be ruled out that it would have any negative financial impact for the participants!
G] Encore: U.S. banks leave net-zero, will Canadian banks follow?
Canada’s largest banks are reconsidering their involvement in the Net-Zero Banking Alliance (NZBA). The alliance, established to promote climate financing, has recently faced several high-profile departures.
US banks such as Goldman Sachs, Morgan Stanley, Wells Fargo, Bank of America, Citigroup, and JPMorgan Chase have withdrawn, citing increased Republican criticism of ‘woke’ capitalism and doubts about the effectiveness of voluntary measures in reducing greenhouse gas emissions.
Royal Bank of Canada (RBC) and Bank of Montreal (BMO), two of Canada’s biggest lenders, have hinted at a potential shift in their approach. Speaking at an industry conference in Toronto, RBC CEO Dave McKay stated that leaving the NZBA “doesn’t lead to a non-commitment to net zero or climate change.”
He explained that such a move would reflect a concern that “maybe that isn’t the right mechanism” for oversight, policy guidance, and reporting rules. At the same event, BMO CEO Darryl White confirmed the bank remains a member of the NZBA but added, “At least we are today.”
White emphasized BMO’s dual commitment to transitioning toward a low-carbon economy while continuing to support legacy energy clients in Canada. He explained, “We won’t abandon that.” The NZBA website listed both banks as members as of Wednesday. However, a spokesperson for the alliance declined to comment.
The Canadian Bankers Association also stated that participation in NZBA is an independent decision for each member. A spokesperson noted that banks in Canada are implementing and reporting on their climate strategies in alignment with domestic regulatory requirements.
Despite their departures from the NZBA, US banks have reaffirmed their net-zero emissions goals and remain committed to helping clients reduce their carbon footprints. Canadian banks, including RBC, BMO, and Toronto-Dominion Bank, were among the top 10 global financiers of oil, gas, and coal in 2024, according to Bloomberg data. JPMorgan Chase ranked as the largest provider of fossil fuel financing that year.
Keith Stewart, senior energy strategist at Greenpeace Canada, called for stronger government action, stating, “If we want to avoid ever-more communities burning from climate-fueled wildfires or submerged in record flooding, then governments must regulate the sector to move the money out of fossil fuels and into climate solutions.”
The NZBA departures reflect a broader pattern of exits from voluntary net-zero groups in the finance industry. In 2023, a similar alliance for insurers experienced significant withdrawals due to Republican litigation threats. Climate Action 100+, a net-zero investor group, saw defections in 2022, including those of asset management units from Goldman Sachs, JPMorgan Chase, and Pacific Investment Management Co.
That same year, Vanguard Group, the second-largest money manager globally, left another net-zero alliance for asset managers….