The longstanding movement to compel corporations to pursue climate and social-justice goals faced a significant setback with the Feb. 26 settlement by Vanguard, the world’s second-largest asset manager, of a lawsuit by 11 state attorneys general, alleging illegal collusion against the coal industry.
“It is going to send shockwaves through the entire ESG complex,” Brent Webster, Texas assistant attorney general, told reporters at a press conference.
Allegations of Ideological Arm-Twisting
The plaintiffs charged that these asset managers were able to pressure companies to comply with global emissions reduction goals both through private meetings with corporate leaders and by voting the shares they controlled on behalf of investors whose money they managed.
“They all agreed that when they would have those corporate engagements, when they would vote up or down on people’s compensation and whether their boards were reelected, they would use whether [the companies] were hitting those targets as part of the metrics for how they make those voting determinations,” Webster said. “And so it sent a message to corporate America that this was one of the objectives you needed to undertake if you were going to keep your job.”
Plaintiff in the lawsuit included states of Texas, Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia, and Wyoming.
The Big Three rose to prominence due to their offerings of so-called passive index funds, in which, rather than buying individual stocks, investors gain exposure to all the companies in a stated index, such as the S&P 500 index of the largest 500 publicly traded companies.
As the ESG movement gained momentum over the past decade, many asset managers joined global climate clubs such as the U.N.-sponsored Net Zero Asset Managers initiative (NZAM) and Climate Action 100, which often featured commitments that members would work to reduce CO2 emissions across their portfolios. Coal companies, typically the largest CO2 emitters, were often a primary target, despite their role as an abundant, reliable, and affordable power source.
Among the goals of the plaintiffs, Webster said, is that the defendants act as passive fund managers regarding corporate voting as well.
Reactions to the Suit
Regarding the settlement, Vanguard issued a statement that the company “has a singular purpose of helping more than 50 million people and their families achieve their financial goals. We’ve reached a resolution to put this matter behind us—a resolution that reaffirms our longstanding practices and standards and the passive nature of our index funds.”
State Street Investment Management, also named in the suit, rejected the plaintiffs’ claims.
“The lawsuit remains baseless and without merit,” a spokesperson for State Street told The Epoch Times. “There was not, and is not, any collusion here aimed at coal prices.
“This settlement does not change that,” the official stated. “In fact, State Street has a well-established commitment to investor voting choice.”
BlackRock declined to comment for this article.
According to the suit, the “Big Three” ownership stake in American’s largest coal companies was: 30 percent of Peabody Energy, 34 percent of Arch Resources, 11 percent of NACCO Industries, 29 percent of CONSOL Energy, 30 percent of Alpha Metallurgical Resources, 25 percent of Vistra Energy, 8 percent of Hallador Energy, 32 percent of Warrior Met Coal, and 33 percent of Black Hills Corporation.
The End of the ‘Halo Exception’
The lawsuit is pivotal because it is one of the first successful legal actions against the “halo exception to colluding against the consumer,” Will Hild, executive director of Consumers’ Research, told reporters at the press conference.
Many fund managers and corporate executives believed they were exempt from America’s antitrust laws if their actions supported what they considered to be worthy causes, he said.
“I’m hopeful that this case is going to finally put that to bed—there is no exception,” Hild said.
A joint statement from the Federal Trade Commission and the Justice Department declared that “antitrust laws allow passive fund investing, they allow shareholder advocacy for better corporate governance, and they allow active investing that doesn’t harm competition … however, this case alleges much more—the coordinated use of the power of horizontal shareholdings to distort output and prices in energy markets.”
