Asset management firms BlackRock, State Street and Vanguard are facing a lawsuit led by Texas and 10 other Republican-led states for allegedly violating antitrust laws by promoting electricity prices and reducing coal production in their climate activism.
Attorney generals in the 11 states filed the complaint in a federal court in Tyler, Texas last week, in one of the highest-profile lawsuits targeting efforts that boost environmental, social, and governance (ESG) practices. The suit claims that the asset managers took “substantial” stockholdings in U.S. coal producers and pressured companies to reduce production of thermal coal and to instead invest in green energy funds. Plaintiffs say this caused coal companies to shrink output and cut carbon emissions by over 50% in 2030, resulting in higher electricity and utility bills for consumers while also restraining competition.
The attorney generals argue that by their actions, BlackRock, Vanguard, and State Street violated Section 7 of the Clayton Act, which prohibits any acquisition of stock where “the effect of such acquisition may be substantially to lessen competition.”
The complaint also claims that by announcing their commitment towards advocacy organization Climate Action 100+, defendants “effectively formed a syndicate and agreed to use their collective holdings of publicly traded coal companies to induce industry-wide output reductions.”
Even as the firms withdrew from climate advocacy groups and reduce their support of climate-backed initiatives, the lawsuit contends that defendants had already reduced competition for coal companies.
“Earlier this year BlackRock and State Street publicly proclaimed that they withdrew from one of the organizations that they previously used to coordinate their anticompetitive conduct, Climate Action 100+. But formal withdrawal from that one organization does not change the reality that Defendants’ holdings threaten to substantially reduce competition in violation of Section 7 of the Clayton Act,” the suit stated. “Nor does it negate the ongoing and future threat of Defendants’ coordinated anticompetitive conduct or absolve Defendants of their legal liability for past violations.
The 11 states, which include Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia and Wyoming, are asking the federal court to block the firms from using their stock in coal companies to vote on shareholder resolutions, and restrict them from engaging in other practices that restrain output and limit market competition.
According to the complaint, BlackRock, Vanguard, and State Street hold $108.787 billion, $101.119 billion and $35.736 billion in coal investments as of February 15, 2022. The companies have over $26 trillion of assets under management (AUM).
The lawsuit comes as other bills move to challenge the Department of Labor’s (DOL) ESG rule, which took in effect in 2023. In March, Congressman Greg Murphy, M.D. (R-N.C.) introduced the “Safeguarding Investment Options for Retirement Act,” seeking to prohibit tax-advantaged retirement plan trustees from considering factors other than financial risk and returns when making investment decisions on behalf of workers, retirees, and their beneficiaries. Under this legislation (H.R. 7780), if plans were found to be using non-financial risk and return factors, they would risk losing their tax-advantaged status.
A second Trump presidency coming in 2025 could also mean new changes or a complete removal of the Biden Administration’s ESG rule. In an interview with 401(k) Specialist in November, ERISA Attorney and Endeavor Retirement Chief Solutions Officer Bonnie Treichel said the regulation may not survive under another Trump presidency, particularly in combination with the demise of Chevron from the Loper Bright case.
“For retirement plan advisors, they have seen back-and-forth around ESG investing guidance for many years, and I am not sure that a change in the final regulation really matters,” Treichel said at the time. “For retirement plan advisors, so long as they continue to follow a prudent process and follow their IPS in line with the duty of loyalty under ERISA Section 404, then the unwinding of the ESG regulation may not matter.”
SEE ALSO:
ESG Adoption Gradually Increases in 2023
DOL Fiduciary Rule, ESG Considerations Likely DOA Under Second Trump Term
Bill to Ban ESG Consideration in Retirement Plans Floated by House Republicans