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Texas and 10 other Republican-led states are suing BlackRock, State Street and Vanguard, alleging they conspired to cut coal supplies for a “destructive and political environmental agenda”.
A federal antitrust lawsuit alleges the three largest U.S. index fund managers used their holdings in coal producers to throttle supply and increase prices to meet zero carbon emissions goals.
The lawsuit, filed Wednesday, marks the latest effort by state Republicans as they step up their fight against what conservatives call “woke capitalism.”
“Texas will not tolerate the illegal weaponization of the financial industry in the service of a destructive, politicized environmental agenda,” said state attorney general Ken Paxton.
“The conspiracy is destroying America’s energy production and harming consumers. This is an egregious violation of state and federal law.
BlackRock responded to the lawsuit, saying, “Suggestions that BlackRock has invested money in companies with the intention of destroying them are baseless and defy common sense. These lawsuits damage the pro-business reputation of Texas and reduce investment in companies that consumers trust.”
Vanguard and State Street did not immediately respond to requests for comment. He previously emphasized his stance on environmental issues as part of his legal obligation to maximize long-term returns.
The lawsuit is the latest fusillade in a three-year battle that has seen Republican politicians boycott BlackRock and other money managers over alleged “hostility” to fossil fuels, and push for tougher oversight of their ownership of banks and energy companies.
The lawsuit points to asset managers’ involvement in programs including Climate Action 100+ and The Net Zero Asset Managers initiative as evidence that they “agreed to use collective ownership of publicly traded coal companies to reduce output across the industry”.
Vanguard withdrew from NZAM in 2022 and has never been a member of the Climate Action 100+. State Street and BlackRock’s American arm left Climate Action 100+ this year, citing legal concerns that the group’s increasingly strong position on coal conflicted with its fiduciary duty to clients.
As of 2021, all three investment firms are increasingly skeptical of shareholder proposals that seek to impose environmental restrictions on company executives.
The states say the company’s holdings in the largest listed US coal producer – including a combined 30 percent stake in Peabody Energy and 34 percent stake in Arch Resources – give it “power to force management that cannot be denied”.
Coal plants provided about 13 percent of Texas’ electricity last year. Several other states that joined the lawsuit, including Missouri, West Virginia and Wyoming, rely more heavily on coal for their electricity supply.
The lawsuit said the companies used their holdings to “facilitate output reduction schemes, which artificially limit coal supply, reduce competition in the coal market, increase energy prices for American consumers, and generate cartel-level profits”.
In support of its case, the state also cited the opinion of the chairman of the Federal Trade Commission Lina Khan in which she said “the antitrust law does not allow us to close our eyes to illegal deals just because the parties do some social benefits that are not related.” .
Although the lawsuit blamed higher coal prices on money managers, most of the latest increases occurred in early 2022 after Russia’s invasion of Ukraine. Prices began to fall sharply, although not completely for several years at the beginning of 2020.
The lawsuit comes as a new generation of populist Republicans seeks to use antitrust as a means to address hot-button issues, such as online platforms that allegedly censor conservative voices.
They see antitrust as a softer tool for dealing with issues such as free speech compared to what they would consider harsher government regulation.
Texas, the second largest economy in the US – and the country’s main producer of clean energy as well as oil and gas – has taken a hard line in recent years amid the spread of companies into the state, flexing its economic muscle to attack companies through attitudes politics.
In March, the Texas state fund pulled $8.5 billion in assets from BlackRock after it was blacklisted for allegedly discriminating against oil and gas companies. BlackRock said at the time the move “puts short-term politics over . . . long-term fiduciary responsibility”.
Additional reporting by Madison Darbyshire in New York
Climate Capital
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