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The attorneys general of eleven Republican States, led by Ken Paxton of Texas, have filed suit in the US District Court for the Eastern District of Texas, alleging that some of the largest money managers in the world have conspired among themselves to stick a knife in the back of American coal companies. If you are wondering what all the fuss is about, several years ago the world of finance decided it was high time to align their investment strategies with the need to prevent global heating from making the Earth uninhabitable for humans.
The movement came to be known as ESG, which stands for environment, social, and governance policies that promote a more just and sustainable world. In plain language, ESG means not destroying the environment to satisfy the insatiable greed of fossil fuel companies, who would happily kill everyone on the face of the Earth if it leads to more profits for them. Is that too strong a statement? We don’t think so. What else can you say about a business organization that knows what it does is making the world hotter and makes no attempt to adjust its behavior to become a good citizen?
ESG Is The Spawn Of The Devil
ESG is anathema to Republicans. We know by now that the US government and the governments of many states are largely puppets of fossil fuel industries. They put up the money to get people elected; they blanket state houses and Congress with shills lobbyists who constantly remind those elected officials of the debt they owe to their benefactors; and they fund pressure groups think tanks that press for the appointment of judges who will favor their clients in any legal matters that may wind up in court. In other words, their modus operandi is to buy as many politicians and judges as they can and then make sure they stay bought. That may be why this latest lawsuit was filed in Texas rather than in New York, where most large money managers have their headquarters.
According to The Daily Wire, the lawsuit alleges that BlackRock, Vanguard, and State Street have worked together to push climate policies in order to artificially restrict the supply of coal. The states say that by doing so, the financial giants, which control around $26 trillion in assets, have violated federal and state antitrust laws. Notice the plaintiffs have not a single thought for the health of the citizens of their respective states or a care in the world about the fate of the planet. All they can see is a decrease in profits, something they find intolerable, rising sea levels and more destructive storms be damned. Keep in mind that scientists employed by major fossil fuel companies clearly warned their employers what the consequences of filling the skies with climate altering crud would be starting more than 50 years ago, but the industry doesn’t want to talk about such things because, you now, profits!
The Environment Be Damned!
“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,” said Ken Paxton, the disgraced attorney general of Texas who was impeached by his own party recently. “Their conspiracy has harmed American energy production and hurt consumers. This is a stunning violation of State and federal law.” The suit was joined by Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia, and Wyoming.
The complaining states argue the asset managers have weaponized their holdings in coal companies to restrict the industry and raise prices. “Defendants have leveraged their holdings and voting of shares 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 for Defendants,” the suit says. “Competitive markets — not the dictates of far-flung asset managers — should determine the price Americans pay for electricity,” the Republican AGs added, saying that the companies pursued environmental, social, and governance policies that harmed investors’ bottom line.
BlackRock Fires Back
Blackrock basically called bullshit on the protestations of those eleven states by saying the suit was without merit. “BlackRock’s holdings in energy companies are regularly reviewed by federal and state regulators. We make these investments on behalf of our clients, and our focus is on delivering them financial returns,” the company told The Daily Wire. “The suggestion that BlackRock has invested money in companies with the goal of harming those companies is baseless and defies common sense. This lawsuit undermines Texas’ pro-business reputation and discourages investments in the companies consumers rely on,” it added.
BlackRock has long faced criticism from conservatives who have argued that it prioritizes leftist activism over customer benefit. The asset manager has been involved in climate-focused groups like the Net Zero Asset Managers initiative, the United Nations Principles for Responsible Investment, and Ceres.
Axios writes that the new lawsuit is one of the most aggressive moves yet against ESG investing — a major target of conservatives. Opposition to ESG investing and corporate DEI (diversity, equity and inclusion) initiatives often go hand in hand, and are strengthening in the wake of the election. Is there a connection between the timing of this litigation and the most recent US election? Bet on it. These things do not happen in a vacuum. The suit alleges the money managers acquired huge stakes in coal companies, then worked together to advance environmental initiatives that meant producing less coal. Horrors! What sort of lunatics would prioritize sustainability over profits? It’s madness!
“Rather than individually wield their shareholdings to reduce coal output, therefore, Defendants effectively formed a syndicate and agreed to use their collective holdings of publicly traded coal companies to induce industry-wide output reductions,” the state plaintiffs wrote. They allege the decreased supply has driven up the price of coal, which has fed through to higher utility costs, which in turn has forced their residents to pay higher electricity prices. In fact, all three firms have participated in initiatives to gather money managers and use their influence to drive environmental policy.
Vanguard was previously a member of Net Zero Asset Managers, formed to push for net-zero greenhouse gas emissions by 2050. It left NZAM in 2022 amid pressure on money managers over ESG investing. State Street and BlackRock remain signatories. BlackRock’s international unit is also part of Climate Action 100+, a similar initiative. Although, the parent company pulled out of that group earlier this year. State Street left CA100+ earlier this year as well.
The Takeaway
This new lawsuit fomented by Ken Paxton is little more than an intimidation tactic designed to punish the financial community for even thinking about including environmental considerations in its investment planning. It’s an attempt by political hacks to substitute their judgement for that of professional money managers. For that reason alone, this strategy is stunningly bold, even though it appears to have more in common with tactics employed by organized crime than with legal proceedings. One possible outcome would be for the court to find the complaint was filed in bad faith and order the participating states to pony up a few billion dollars to compensate the financial companies for their legal expenses and attorneys fees.
The lie that gives away the hypocrisy behind the states’ claims is that LNG exports actually are raising the price of methane for Americans, which makes electricity more expensive for many. But those flag waving AGs are not concerned about that in the slightest. In fact, they are cheering on the new administration to approve a slew of new LNG terminals, many off the coast of Texas, which rather exposes their duplicitous protestations as nothing more than political grandstanding. A competent jurist with more than a week’s worth of experience on the bench should sniff out the true nature of this sham litigation and quash it. But will that happen? “We’ll see,” said the Zen master.
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