Republican states sue BlackRock, Vanguard and State Street over their sustainability investments | Economy

The US Republican Party’s offensive against sustainable investing is gaining momentum. Texas and 10 other red states have filed a lawsuit against investment giants BlackRock, Vanguard Group and State Street Corporation. The plaintiffs accuse the firms of coordinating and attacking competition by trying to cut coal production and carbon dioxide emissions from electricity production. This time it’s an excuse. In the background is a conservative attack on companies and investors who are guided by environmental, social and governance criteria known as ESG.

That same week, those pressures forced Walmart, the company with the most employees in the United States, to take a step back on its diversity initiatives after it found itself in the spotlight of a conservative activist. Other companies have faced boycotts and counter-campaigns for their social and governance initiatives. Republican politicians have primarily targeted big investment firms, and they are targeting them again in a lawsuit filed this Wednesday led by Texas Attorney General Ken Paxton.

In the 109-page lawsuit, Paxton and prosecutors from Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia and Wyoming accuse three institutional investment giants of conspiring to artificially limit the coal market through anticompetitive practices. business practice.

“Over a period of several years, the three asset managers acquired significant stakes in all of the major publicly traded coal producers in the United States, thereby gaining the ability to control the policies of coal companies,” the plaintiffs allege. “Leveraging their combined influence over the coal market, the investment cartel collectively announced in 2021 its intention to weaponize its shares to pressure coal companies to achieve green energy goals.” To achieve this goal, investment companies have pushed for coal production to be cut by more than half by 2030,” they add.

Prosecutors accuse Blackrock, Vanguard and State Street of using Climate Action 100+ and the Net Zero Asset Managers Initiative to signal their mutual intent to reduce thermal coal production, which they say increases the cost of electricity for Americans across the country.

According to the lawsuit, the companies also defrauded thousands of investors who chose to invest in funds that did not follow ESG criteria to maximize their returns, only to find that the managers were applying those principles despite their claims to the contrary.

“Intentional and artificial supply restrictions have driven up prices and allowed investment companies to make extraordinary profits. “This conspiracy violated certain federal laws that prohibit a majority shareholder or group of shareholders from using its shares to lessen competition or engage in other anticompetitive schemes,” the plaintiffs claim.

The Texas Attorney General’s Office is most hawkish: “Texas will not tolerate the illegal weaponization of the financial industry in service of a destructive and politicized environmental agenda. “BlackRock, Vanguard and State Street formed a cartel to manipulate the coal market, artificially reduce energy supplies and raise prices,” said state Attorney General Ken Paxton. “Their conspiracy has harmed American energy production and consumers. “This is a blatant violation of state and federal law,” he added.

The 11 Republican states are demanding jury trials, indicting the investment firms on federal and state charges and demanding all types of punitive and compensatory measures against them.

Strong political pressure

Political and regulatory pressure already led last February to four US financial giants (JPMorgan, BlackRock, State Street and Pimco) adding trillions of dollars in assets to abandon or reduce their relationships with Climate Action 100+, the largest initiative of investment groups and companies. major companies to reduce emissions and combat global warming.

“Views on sustainability or ESG practices, particularly those related to climate issues, have become political issues that can heighten reputational risks,” State Street noted in its latest annual report filed with the U.S. Securities and Exchange Commission (SEC ). . “Some US officials have suggested that investment practices related to sustainability or ESG may lead to violations of the law, including antitrust laws, and breaches of fiduciary duty,” he acknowledged.

BlackRock has already issued a similar warning in its 2022 annual report: “ESG criteria and sustainability have received increased regulatory attention in all jurisdictions,” the company noted. “Certain states or government officials in the United States have enacted or proposed laws or taken official positions that restrict or prohibit state government entities from doing certain types of business with entities that the states identify as “boycotting” or “discriminating” against certain sectors or that they consider ESG factors in investment and board voting processes. Other states and localities may enact similar legislation or different laws and positions related to ESG criteria,” it added.