US federal authorities have backed a coal-based collusion case brought by several states against Vanguard, BlackRock and State Street.
In a joint statement published late in May, the US Department of Justice and Federal Trade Commission (FTC) supported the anti-trust allegations lobbed against the three mega-managers by Texas Attorney General Ken Paxton on behalf of 11 Republican-leaning states in November last year.
The Texas et al accuses Vanguard, BlackRock and State Street of cartel-like behaviour after the group “collectively announced in 2021 their commitment to weaponize their shares to pressure the coal companies to accommodate ‘green energy’ goals”.
But while the managers – the three largest in the world – have disputed the state case on multiple legal errors, the Justice Department and FTC interpretation signals a long fight lies ahead.
“There should be no confusion: the antitrust laws allow passive fund investing, they allow shareholder advocacy for better corporate governance, and they allow active investing that doesn’t harm competition,” the joint statement says.
“… however, this case alleges much more – the coordinated use of the power of horizontal shareholdings to distort output and prices in the energy market.”
The ruling rejects arguments by the managers claiming several laws and legal precedents should see the anti-trust allegations against the investment firms dismissed.
And the federal statement also pushes back on the defence position that the case “would threaten the viability of index-based investing”. “… the importance of index investing does not protect institutional investors and asset managers that act to use their shares in fact to stifle competition among their commonly held companies,” the FTC/Justice Department ruling says.
Investment managers have come under fire in the US, particularly, over environmental, social and governance (ESG) activities in recent years with BlackRock and others losing several large state government mandates as part of the backlash.
The latest joint statement from the FTC and Justice Department suggests the anti-ESG political sentiment in the US is only set to dig in deeper.
FTC chair, Andrew Ferguson, said in a release: “President Donald Trump understands the importance of coal for our energy security and has vowed to fight left-wing ideologues who seek to make us weaker and poorer under the guise of ESG.
“Today, the Federal Trade Commission carries out this administration’s mission to unleash American energy dominance, protect coal, and stop the left’s attempt to corrupt financial markets with political and social objectives.
“These companies allegedly blocked the production of American coal in the name of climate change scaremongering, all so they could take money out of the pockets of American consumers and put it in theirs.”