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Texas and 10 other Republican-led states are suing BlackRock, State Street and Vanguard, alleging that they conspired to curtail coal supplies to further “a destructive, politicised environmental agenda”.
The federal antitrust lawsuit accuses the three largest US index fund managers of using their holdings in the coal producers to constrict supplies and drive up prices in pursuit of net zero carbon emissions goals.
The lawsuit, filed on Wednesday, marks the latest effort by Republican states as they step up their war on what conservatives call “woke capitalism”.
“Texas will not tolerate the illegal weaponisation of the financial industry in service of a destructive, politicised environmental agenda,” said state attorney-general Ken Paxton.
“Their conspiracy has harmed American energy production and hurt consumers. This is a stunning violation of state and federal law.”
The companies did not immediately respond to requests for comment. All three have previously denied that their climate stances are illegal or in any way conflict with their legal obligation to maximise long-term returns.
The lawsuit is the latest fusillade in a three-year battle that has led to Republican politicians boycotting BlackRock and other money managers for being allegedly “hostile” to fossil fuels, and seeking to impose tougher scrutiny on their holdings and banks and energy companies.
The lawsuit pointed to the asset managers’ involvement in programmes including Climate Action 100+ and The Net Zero Asset Managers initiative as evidence that they had “agreed to use their collective holdings of publicly traded coal companies to induce industry-wide output reductions”.
Vanguard quit NZAM in 2022 and never belonged to Climate Action 100+. State Street and BlackRock’s American arm left Climate Action 100+ this year, citing legal concerns that the groups’ increasingly strong position on coal conflicted with their fiduciary duty to clients.
Since 2021, all three investment companies have become increasingly sceptical of shareholder proposals that seek to impose environmental constraints on company executives.
The states allege that the companies’ holdings in the biggest listed US coal producers — including a combined 30 per cent stake in Peabody Energy and a 34 per cent stake in Arch Resources — give them “a power to coerce management that is all but irresistible”.
Coal-fired plants supplied about 13 per cent of Texas’s electricity last year. Some other states that joined the lawsuit, including Missouri, West Virginia and Wyoming, are more heavily reliant on coal for their power supply.
The lawsuit said the companies had used their holdings to “facilitate an output reduction scheme, which has artificially constrained the supply of coal, significantly diminished competition in the markets for coal, increased energy prices for American consumers, and produced cartel-level profits”.
To support their case, the states also cited an opinion piece by Federal Trade Commission chair Lina Khan in which she said “antitrust laws don’t permit us to turn a blind eye to an illegal deal just because the parties commit to some unrelated social benefit”.
Although the lawsuit blames higher coal prices on the money managers, most of the recent increases came in early 2022 after the Russian invasion of Ukraine. Prices have since fallen back sharply, although not all the way to the multi-year lows hit in early 2020.
The lawsuit comes as a new generation of populist Republicans have sought to use antitrust as a means to further rightwing hot-button issues, such as online platforms allegedly censoring conservative voices.
They see antitrust as a softer tool to address matters such as free speech compared with what would be deemed more burdensome government regulation.
Texas, America’s second-biggest economy — and the country’s leading producer of clean energy as well as oil and gas — has taken a particularly hard line in recent years amid a corporate influx to the state, flexing its economic muscles to attack companies over their political stances.
In March, a Texas state fund pulled $8.5bn of assets from BlackRock after placing it on a blacklist for allegedly discriminating against oil and gas companies. The group said at the time the move “put short-term politics over . . . long-term fiduciary responsibilities”.
Additional reporting by Madison Darbyshire in New York