Texas and ten other Republican-led states have launched a lawsuit accusing BlackRock, Vanguard, and State Street of using environmental, social, and governance (ESG) investment strategies to disrupt coal markets.

The lawsuit, filed in federal court, claims these asset managers leveraged their influence to cut coal production, driving up energy costs and violating antitrust laws, ESGtoday reported.

Coal Output Manipulation

The lawsuit is reportedly spearheaded by Texas Attorney General Ken Paxton. It accuses the three financial giants of having acquired significant stakes in major coal companies like Peabody Energy and Arch Resources. These holdings, representing over 30% of the US coal market, were allegedly used to pressure producers to reduce coal output in favor of clean energy targets.

The suit claims this coordinated action was part of commitments made through initiatives like the Net Zero Asset Managers Initiative and Climate Action 100+, which aim to align investments with climate goals. The states argued that this strategy, while touted as climate-conscious, has harmed competition and burdened consumers with higher energy prices.

However, BlackRock and State Street have dismissed the allegations as unfounded. BlackRock described the lawsuit as baseless and stated that it undermines Texas’ reputation as a pro-business state, Reuters reported.

Attorney General Ken Paxton Sues BlackRock, State Street, and Vanguard for Illegally Conspiring to Manipulate Energy Markets, Driving Up Costs for Consumers: https://t.co/ROHNQnuvFF

— Texas Attorney General (@TXAG) November 27, 2024

This legal move represents the latest chapter in a broader Republican-led pushback against ESG investing, which critics view as a politically charged disruption to traditional market dynamics. Texas has been at the forefront of this movement, previously restricting the use of ESG factors in state investments and advocating for greater oversight of asset managers.

Allegations of Misleading Investors

Despite their recent withdrawal from ESG initiatives, including Vanguard’s 2022 exit from the Net Zero Asset Managers Initiative, the lawsuit claims these firms’ past actions still pose a threat of continued pressure. The suit also accused BlackRock of misleading investors by allegedly using non-ESG funds to advance environmental objectives despite promising to prioritize shareholder value.

The lawsuit seeks to prohibit these asset managers from using their investments to influence energy market policies. It also demands civil penalties for violating federal antitrust and Texas consumer protection laws.

ESG has now become an important subject in institutional investing practices. During the Finance Magnates London Summit 2023, Evdokia Pitsillidou, the Partner, Risk, and Compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term Director at SALVUS FUND, joined other experts to discuss the matter.

She opined: "The main objective of ESG is the transition to a more sustainable and environmentally friendly financial system. ESG enables investors to assess how well management teams consider the risks and opportunities of environmental, social, and governance factors."