BlackRock Inc. BLK, State Street Corp. STT and Vanguard have been accused of violation of antitrust law via climate activism, which reduced coal output and hiked energy prices. The allegations have been brought in by Texas and 10 other states.
The lawsuit was filed this Wednesday in the Federal Court in Tyler, TX, and is one of the top-profile lawsuits aimed at efforts promoting environmental, social, and governance (ESG) goals.
The 10 other states are Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia and Wyoming.
Details of the Allegations Against BLK, STT & Vanguard
Asset managers have been accused of manipulating energy prices by misusing their market power and of being involved in climate advocacy groups. Over several years, BLK, STT, and Vanguard acquired significant stakes in every major publicly traded coal producer in the United States, thus gaining an influential power to dictate their policies.
Using their combined influence, in 2021, BLK, STT and Vanguard put pressure on coal companies to reduce their production and carbon emissions from coal by more than half by 2030 to promote “green energy” goals, thus, boosting the cost of electricity for Americans across the nation.
BLK, STT, and Vanguard used the Climate Action 100+ and the Net Zero Asset Managers Initiative to indicate their collective intent to slash the production of thermal coal. Vanguard exited from the Net Zero initiative in 2022, while BlackRock & State Street left Climate Action 100+ this February.
However, the states commented that these exits didn’t negate the "ongoing and future threat" of sustained pressure.
BLK has been further accused of “actively deceiving” its non-ESG fund investors by promising them to enhance their shareholder value. Yet, it has pursued ESG strategies and used all its holdings to promote its climate goals.
Ken Paxton, Attorney General of Texas, stated, “Texas will not tolerate the illegal weaponization of the financial industry in service of a destructive, politicized ‘environmental’ agenda. BlackRock, Vanguard, and State Street formed a cartel to rig the coal market, artificially reduce the energy supply, and raise prices. Their conspiracy has harmed American energy production and hurt consumers. This is a stunning violation of State and federal law.”
Consequence of Lawsuit Filed Against BLK, STT and Vanguard
The lawsuit aims to prevent the defendants from leveraging their holdings to influence shareholder resolutions or take actions that might undermine coal production and hinder market competition.
BlackRock stated that “any suggestion it invested in coal producers to harm them was "baseless and defies common sense. This lawsuit undermines Texas' pro-business reputation and discourages investments in the companies consumers rely on”, per a Reuters report.
Further, BLK, STT, and Vanguard may have to pay civil fines for violating federal antitrust and Texas consumer protection laws.
Currently, both BlackRock & State Street sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Legal Issued Faced by Other Finance Firms
This September, Wells Fargo & Company WFC faced a new class-action lawsuit, where it has been accused of underpaying interest to clients participating in its cash sweep program.
The plaintiff, Darren Cobb, alleged that Wells Fargo breached its fiduciary duty, violated principles of fair dealing, and committed breach of contract and unjust enrichment. The lawsuit alleged that WFC didn't pay enough interest on uninvested cash while making a significant profit from these funds, leading to substantial financial loss for its clients.
Similarly, a proposed order was filed by the U.S. Consumer Financial Protection Bureau against Navient Corporation NAVI, according to which the student loan servicer will be permanently banned from servicing federal direct loans and directly servicing or acquiring most loans under the Federal Family Education Loan Program.
NAVI has been accused of deceiving borrowers into delaying loan repayments even if they qualified for affordable repayment plans based on their incomes, which resulted in them paying more interest because it was cheaper and simpler.
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