Over half of American workers, amounting to upwards of 80 million people, participate in a retirement plan sponsored by their employer. And while the specifics of these plans can vary from job to job, the general organizing principles are the same: Employees put money into a retirement account, an account manager invests the employee contributions, and when the employee retires, there’s ideally a larger pot of money available for them to live off of. 

This wasn’t always reality. In the 1960s and 1970s, multiple private pension funds collapsed and left workers without money for their retirement years. Congress responded to this crisis in 1974 by passing the Employee Retirement Income Security Act, which sets out basic rules for managing retirement funds responsibly to make sure that the funds that old folks are anticipating don’t disappear. 

But these days, the law is being used a bit differently. Spence v. American Airlines is a first-of-its-kind trial court decision that uses ERISA to punish companies for even considering investing the funds in something that could do some good in the world.

On January 10, a federal district judge ruled in Spence that American Airlines violated ERISA by using the services of the world’s biggest asset management firm, BlackRock, to manage its employees’ retirement accounts. (Most Fortune 100 companies use BlackRock for the same purpose.) Back in 2016, Blackrock expressed concern that too many companies—potential targets for investment and asset management—had been ignoring the long-term financial risks of climate change, and that it would encourage consideration of Environmental, Social, and Corporate Governance factors (ESG) when making investment decisions and voting on shareholder proposals. BlackRock named “climate risks and opportunities” among its investment priorities in 2019, and the following year, it joined Climate Action 100+, a coalition of investors that pressured the biggest corporate greenhouse gas emitters to commit to reducing emissions and providing climate-related financial disclosures. 

Blackrock backed away from these commitments, however, after strong backlash and divestment threats from Texas and some other states. Last year, it exited Climate Action 100+ altogether, following an announcement from the group about its plans to ramp up its climate-related activity, and issued a statement that gestured towards its fiduciary and contractual obligations. Blackrock withdrew from a similar initiative, Net-Zero Asset Management, earlier this month, citing continued political pressure.

Even so, according to Judge Reed O’Connor, a George W. Bush appointee in the Northern District of Texas, all of this was evidence that BlackRock focused on “climate change investment activism” rather than the best financial interests of retirement plan participants. To O’Connor, BlackRock’s explanation for its withdrawal from Climate Action 100+ constituted “essentially a confession.” O’Connor held that by hiring BlackRock to manage its employees’ money and failing to “provide oversight and accountability,” American Airlines breached its duty of loyalty to its employees, “either in service of BlackRock’s demands, in pursuit of American’s own corporate goals, or both.” Apparently, thinking about the habitability of the planet is bad for business. 

Or at least, that’s what O’Connor’s opinion assumes. O’Connor, whose Texas courtroom is frequented by right-wing forum shoppers from across the country, did not consider or establish whether American Airlines plan participants experienced any actual losses or reduced returns. In fact, between 2017 and 2022, the average American Airlines retirement account balance increased from $426,206 to $679,123. O’Connor speculated that a retirement fund “could in theory still underperform” if it “could” have received higher returns “had it focused strictly on financial considerations.” But there is no evidence in the opinion to suggest these increases were below expectations, that ESG investing caused any underperformance, or that there was any underperformance at all. 

O’Connor is deriving his conclusion from language in ERISA that requires fiduciaries to act “solely in the interest of the participants and beneficiaries,” and for the “exclusive purpose” of providing benefits.” And as understood by the Supreme Court, “benefits” in this context means financial benefits. But considering environmental, social, and governance factors does have financial benefits. O’Connor claimed, based on a comparison to two stock market indices in 2023, that “ESG investments often underperform traditional investments.” But an NYU review of 1,000 studies on ESG investing published between 2015 and 2020 found that only about 13 percent indicated that ESG investments performed worse than conventional investments. At least 59 percent showed ESG investments performing similarly or better. Fifty-eight percent showed a positive relationship between ESG and financial performance, while only 8 percent showed a negative relationship. To state the obvious, massive corporations like American Airlines are not suddenly uninterested in money. 

In his opinion in Spence, O’Connor wrote that a fiduciary may consider ESG only if its motive is, fundamentally and exclusively, the pursuit of maximum financial benefit, as opposed to “the belief that the company has a responsibility to improve the society in which it operates.” Yet Spence simultaneously treats the idea that ESG considerations can yield positive monetary impacts with great skepticism. “Just because BlackRock says it is ‘financial’ or ‘material’ does not automatically mean that it is,” O’Connor wrote. He continued, “Using such labels is clever pretext, particularly when dealing with an unproven and nebulous issue like climate change.” 

The implications of this are alarming, and not just for what it says about O’Connor’s scientific illiteracy. Thinking about the social impact of investments is becoming standard practice. Over half of American investors say they have had an ESG policy in place for at least 2 years, according to a report published last year by Tufts University and Deloitte. A mere 1 percent of American investors said they neither have an ESG policy nor plan to develop one. Assets managed with ESG considerations account for one-third of the $51 trillion in U.S. assets under management. But O’Connor is indicating that companies will be exposed to lawsuits if he even detects a whiff of a sense of social responsibility. The opinion literally spends paragraphs criticizing senior executives at American Airlines for discussing an article titled “How to Make Your 401(k) a Little Less Evil” over email. “Nothing in this email exchange indicated a financial benefit,” O’Connor wrote. 

This conclusion assumes that investing in anything halfway-decent necessarily means sacrificing financial returns. The ironic result is that Spence pressures investors to shy away from ESG investment strategies that would enhance the performance of their funds. Republican judges like O’Connor are not satisfied with simply enabling their ideological allies to do things that are bad. They also are trying to make it illegal for people to try to do things that are good.