RPJ’s Gregory P. Feit Featured in “Charter Works” Article on Texas Federal Court’s Ruling that “ESG Investing” Is Illegal in 401(k) Funds

In a recent interview for Charter Works, RPJ’s Gregory P. Feit discusses the January 10, 2025 federal court ruling in Texas, which declared that ESG (Environmental, Social, and Governance) investing is illegal in managing 401(k) funds. The case, Spence v. American Airlines, Inc., revolves around BlackRock’s management of American Airlines employees’ retirement plans, with a pilot claiming that the company neglected its fiduciary duty under ERISA by allowing fund managers to consider ESG factors rather than focusing exclusively on financial returns. Judge Reed O’Connor of the United States District Court for the Northern District of Texas ruled that employers must ensure their retirement fund managers prioritize financial interests over any non-pecuniary goals, such as social or environmental considerations.

Mr. Feit notes that the ruling could potentially lead to widespread changes in how companies and investment managers make decisions regarding 401(k) plans, with significant impacts across the U.S. While the ruling restricts ESG investing, Mr. Feit points out that ESG factors can still be considered in investment strategies, provided they are used to enhance financial returns for the plan participants. Mr. Feit advises employers to review and tighten their oversight of investment managers, and include clear, robust explanations in their 401(k) plans demonstrating how any ESG-related decisions align with the financial best interests of plan participants and beneficiaries, to avoid potential litigation.

Read the full article here and here (non-paywall version).

This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Attorney Gregory Feit who counsels clients on employment law, litigation, arbitration, negotiation, and trial advocacy. Mr. Feit is admitted to practice in New York.