In prior posts, I have noted the growing phenomenon of an anti-ESG backlash. The ESG backlash has taken the form of both legislation and litigation. In the latest examples of ESG backlash litigation, plaintiffs recently have filed two lawsuits against U.S.-based airlines based on the companies’ alleged actions supporting ESG-related initiatives. As discussed below, these latest lawsuits reconfirm that it is not the ESG laggards that are getting hit with ESG-related litigation; rather, the lawsuits are coming against companies that are taking ESG-supportive initiatives.
The American Airlines lawsuit
On June 2, 2023, an American Airlines pilot filed an ERISA class action lawsuit in the Northern District of Texas against American Airlines; the American Airlines Employee Benefits Committee; the company’s benefits plan administrator; and the company’s benefits plan advisor. The lawsuit purports to be filed on behalf of participants in the company’s employee benefits plan. A copy of the complaint can be found here.
The gist of the complaint is that the defendants “breached their fiduciary duties in violation of ERISA by investing millions of dollars of American Airlines employees’ retirement savings with investment managers and investment funds that pursue leftist political agendas through environmental, social and governance (‘ESG’) strategies, proxy voting, and shareholder activism—activities which fail to satisfy these fiduciaries’ statutory duties to maximize financial benefits in the sole interest of the Plan participants.”
The complaint alleges that the defendants “breached their fiduciary duties of loyalty to the Plan and the Plan participants and beneficiaries by selecting and retaining as investment options under the Plan ESG funds and funds that are managed by investment companies that pursue ESG objectives through proxy voting and shareholder activism.”
The complaint further alleges that the defendants also breached their fiduciary duties of prudence to the Plan and Plan participants by “selecting and retaining poorly performing and more expensive ESG funds as investment options, and by failing to investigate and monitor the ESG funds’ proxy voting and shareholder activism.”
The complaint alleges that the defendants violated their duties under ERISA of “loyalty and prudence” and their duty to monitor fiduciaries. The complaint seeks equitable relief enjoining the defendants alleged misconduct; damages; and recovery of attorneys’ fees.
The Delta Airlines Lawsuit
On May 30, 2023, a California resident filed a purported class action lawsuit in the Central District of California against Delta Airlines. A copy of the plaintiff’s complaint can be found here. The plaintiff’s lawsuit is in effect a “greenwashing” lawsuit. The gist of the plaintiff’s claims against the airline is that its claims of “carbon neutrality” are false and misleading. The key component of the plaintiff’s claims is that the allegation that the company’s carbon neutrality claims are based in its reliance upon the carbon offset market, which, the complaint alleges, is “replete” with “foundational issues” that make it unreliable and misleading. The complaint asserts a variety of statutory claims under California law, including under the California Consumer Remedies Act; False Advertising; and the Unfair, Unlawful, and Deceptive Trade Practices Act. The complaint seeks statutory damages, and where available, statutory damages.
These latest complaints underscore how fraught an issue ESG has become. The first of the lawsuits also underscores how politicized ESG has become. Both of the lawsuits highlight a point that I have made before, which is that it is not the ESG laggards that are attracting ESG-related litigation; rather, the lawsuits are coming in against companies that were, one way or the other, taking the initiative on ESG-related issues.
The pattern of the ESG lawsuits that are actually being filed is worth taking note of. So far at least, the default D&O insurance underwriting position is that D&O underwriters should be trying to determine whether or not companies are “good” on ESG, with some expectation or understanding that companies that are “good” on ESG (whatever that means) are entitled to some type of benefit or perhaps even preferential terms and conditions.
This underwriting approach or presumption is completely contrary to the lawsuits that are actually being filed related to ESG issues. As these two new lawsuits show, it is the companies’ very ESG-related activities that can get them embroiled in ESG-related litigation. At a minimum, these lawsuits show that ESG-related risk is more complex and more multi-faceted than the D&O insurance industry had at least up to this point been assuming. Trying to underwrite for ESG related risks is more complex matter than the D&O insurance underwriters have up this point been assuming. The entire approach to the topic of ESG needs to be reconsidered in light of the lawsuits that are actually being filed.