Texas-Led States Sue Investment Firms Over Alleged Electricity Price Manipulation

A group of Republican-led states, spearheaded by Texas, has filed a federal lawsuit against BlackRock, Vanguard Group, and State Street, accusing them of driving up electricity prices by influencing coal production cuts. According to Bloomberg, the complaint, filed Wednesday, represents the most high-profile challenge yet to Wall Street’s environmental, social, and governance (ESG) initiatives.

The lawsuit claims that the firms leveraged their influence and membership in climate-focused organizations, such as Climate Action 100+ and the Net Zero Asset Managers Initiative, to pressure coal companies into reducing output. These supply constraints allegedly led to higher power bills for residents in Texas, West Virginia, Montana, and other states involved in the legal action.

“Competitive markets — not the dictates of far-flung asset managers — should determine the price Americans pay for electricity,” the attorneys general wrote in the complaint.

Antitrust Allegations and Energy Market Impact

The states, including West Virginia and Montana, argue that the firms’ collective actions constitute a violation of the Clayton Antitrust Act, a 1914 law designed to prevent anti-competitive practices. According to Bloomberg, the suit accuses BlackRock, Vanguard, and State Street of coordinating to limit coal industry competition by voting with their large shareholdings in coal companies like Peabody Energy Corp. and Arch Resources Inc.

The lawsuit also seeks to restrict these firms from using their coal industry holdings to influence shareholder votes or take actions that could constrain market competition.

Related: Supreme Court Sidesteps 5-Hour Energy Pricing Case, Allowing Antitrust Claims to Proceed

Years of GOP Scrutiny of ESG Practices

The lawsuit is the culmination of a long-running GOP campaign to challenge ESG investing, which Republican officials argue undermines energy markets and raises costs for consumers. Over the past year, several state attorneys general warned financial firms against using Americans’ savings to pursue “political goals,” a critique frequently leveled at ESG strategies.

According to Bloomberg, critics of ESG argue that the focus on climate risks pushes agendas unrelated to maximizing financial returns. Supporters, however, maintain that addressing environmental risks is a fiduciary responsibility, as these risks could harm long-term investment performance.

Climate Group Memberships Highlighted in Lawsuit

While some firms have distanced themselves from high-profile climate initiatives, the lawsuit claims that these changes do not negate the anti-competitive effects of their past actions. For instance, Vanguard exited the Net Zero Asset Managers Initiative in 2022, and State Street Global Advisors recently withdrew from Climate Action 100+, citing conflicts with its independent voting policies. BlackRock has reduced its participation but remains a member of certain coalitions.

The states allege that despite these moves, the firms’ collective influence continues to threaten competition within the coal sector, per Bloomberg.

Broader Energy Context

The coal industry in the U.S. has faced significant challenges in recent years due to the rise of cheaper natural gas and renewable energy. Coal’s share of Texas’s electricity generation, for example, has dropped from 18% in 2020 to under 10% in 2024, according to the Electric Reliability Council of Texas.

This lawsuit underscores ongoing tensions between Republican officials and financial firms over the role of ESG strategies in energy markets. BlackRock, Vanguard, and State Street have not commented on the litigation.

Source: Bloomberg