Texas Accuses BlackRock, Vanguard, State Street of Using ESG to Manipulate Energy Market

New court threats for ESG asset managers in the US. Eleven US states, led by Texas Attorney General Ken Paxton, have filed a lawsuit against BlackRock, Vanguard and State Street. The three asset managers have been accused of abusing their influence to manipulate carbon markets, pushing companies to reduce production to support climate goals (in line with the targets of the IEA, the International Energy Agency), a move that would have increased energy costs for consumers.

The case, filed in the Eastern District Court of Texas, is the latest manifestation of a broader Republican opposition to ESG (environmental, social and governance) policies.

What are the three ESG asset managers accused of?

The lawsuit alleges that the three companies have formed a “cartel” through their participation in climate initiatives such as Climate Action 100+ and the Net Zero Asset Managers Initiative (NZAM). These organizations require members to influence companies in their portfolios to align with climate goals, such as reducing carbon emissions and coal production by 2030, the lawsuit alleges.

The companies are also accused of violating the Clayton Act, an antitrust law that prohibits actions that significantly reduce competition. According to the complaint, BlackRock, Vanguard and State Street, with significant stakes in large coal producers such as Peabody Energy and Arch Resources , have pressured coal producers to reduce production, leading to higher energy costs for consumers.

There is no concrete evidence: the decline in production is a response to the convenience of natural gas

Attorneys general argue that the reduction in coal production by public companies, such as those mentioned, was caused by pressure from investors. However, there is no concrete evidence to demonstrate direct coordination or specific pressure to reduce production. Instead, the reduction appears to be a natural response to declining demand, given the decline in coal plants, which have now been overtaken by natural gas in terms of economic viability.

Incidentally, it seems almost ironic that among the demands put forward by Paxton is divestment from coal companies, a goal that actually coincides with that of climate activists, usually in opposition to Republican states.

The political and legal context

This case reflects a growing political conflict in the United States over ESG issues. For many Republicans, investor influence on climate issues represents an unacceptable intrusion into market dynamics. Republican states have already taken several actions against sustainability policies, including bans on the use of ESG criteria in state investment decisions and lawsuits against large asset managers.

The court chosen for the case, located in the Fifth Circuit, is known for its politically charged decisions. If the case proceeds, the conservative U.S. Supreme Court could play a crucial role in deciding the outcome.

How BlackRock, Vanguard and State Street Responded to the Allegations

BlackRock, Vanguard and State Street have strongly denied the allegations, calling them baseless. According to some media reports, a BlackRock spokesperson stressed that the firm manages funds on behalf of clients and has no interest in harming the companies in which it invests. On the other hand, as BlackRock CEO Larry Fink has stated on several occasions, “climate risk is an investment risk.” Likewise, State Street has stated that it acts solely in the financial interests of investors, without political agendas.

Additionally, participation in climate initiatives has been scaled back in recent times . Vanguard, for example, exited NZAM in 2022, while BlackRock and State Street have reduced their involvement in other initiatives to avoid undue constraints.

Implications for the future of climate and energy (and ESG practices)

This case could have some major consequences: on the one hand, it could affect the way trillions of dollars are managed, limiting investors’ influence on the energy transition. On the other hand, it risks slowing down global efforts to address the climate crisis, moving the debate on the future of climate and energy into the courts, when the future on these issues should be in the hands of legislation.

In a landscape already marked by political polarizations and opposing economic interests, this case could therefore represent a test for the role of investors in the fight against climate change.

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(Featured image by Bermix Studio via Unsplash)

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