Justice Department and FTC Warn Common Ownership Could Breach Antitrust Law

According to The Wall Street Journal, the Justice Department and the Federal Trade Commission are expected to submit a formal statement on Thursday in support of a lawsuit brought by Texas Attorney General Ken Paxton and several other Republican-led states. The case targets asset management giants BlackRock, State Street, and Vanguard, accusing them of anti-competitive behavior in the coal sector.

At the core of the dispute is the practice of common ownership, where a small number of institutional investors hold substantial stakes in multiple companies within the same industry. While long accepted as a standard feature of passive investing, this practice has recently drawn scrutiny from antitrust enforcers and lawmakers across the political spectrum. Per The Wall Street Journal, the federal agencies argue that common ownership could pose competitive risks when investors use their cross-company influence to push strategic agendas.

The federal statement, referred to as a “statement of interest,” supports claims that BlackRock, Vanguard, and State Street may have harmed competition by pressing coal companies to align with climate-focused initiatives. The asset managers, who collectively owned between 8% and 34% of shares in publicly traded coal producers last year, were also active in industry groups that advocated for emission reductions—a move the lawsuit contends led to decreased coal output and, subsequently, higher prices.

Although progressive policymakers initially drove scrutiny of common ownership, the issue has increasingly gained traction among conservatives who argue that environmental, social, and governance (ESG) investing has distorted markets. The lawsuit reflects this shift, with Republican states asserting that ESG-driven influence represents a form of collusion.

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The Justice Department and FTC are not challenging the legality of passive index investing outright. Instead, they caution that antitrust violations may occur when institutional investors use their ownership stakes in competing firms to influence industry-wide outcomes. According to The Wall Street Journal, the agencies believe the allegations in the Texas lawsuit present a “credible legal theory” of antitrust harm.

In response, the asset managers have defended their actions, emphasizing that their investment strategies are index-based and passive in nature. They argue that any corporate engagement related to climate risks is incidental and does not amount to coordinated conduct or antitrust conspiracy.

The debate arrives amid broader political efforts to revive the U.S. coal industry. Former President Donald Trump recently issued executive orders aimed at revitalizing coal mining and usage, as noted by The Wall Street Journal. House Republicans have also intensified oversight of major asset managers, criticizing their role in collaborative climate initiatives. Notably, Vanguard exited the Net Zero Asset Managers Initiative in 2022, and BlackRock withdrew earlier this year.

Source: The Wall Street Journal