Did some of the biggest investors in the world buy up shares in coal companies to force them to produce less coal?
An unusual lawsuit in Texas claims that investment firms including BlackRock, Vanguard and State Street did just that, illegally colluding with one another to reduce coal production as part of a conspiracy to fight climate change.
In a federal court in Texas on Monday, a lawyer for BlackRock told a judge that the claims “defy economic reality” and that the lawsuit should be dismissed. “The complaint ignores that the coal market has been declining for decades for a host of reasons well before this alleged conspiracy,” said Gregg Costa, a lawyer with the firm Gibson Dunn, speaking on behalf of all three defendants.
A lawyer for Texas, which filed the suit late last year along with 10 other states, said BlackRock’s chief executive, Laurence D. Fink, has written in the past that corporations should set targets for greenhouse-gas reductions. For coal companies, that means “reducing output,” said the lawyer, Brian Barnes of the firm Cooper & Kirk.
Texas, a major oil- and gas-producing state, has taken aggressive action against financial companies over climate issues, including enacting a law that bars state entities from doing business with investment firms that the comptroller says are boycotting energy companies. In January, the Texas attorney general, Ken Paxton, and 10 other state attorneys general sent a letter to financial institutions warning that their policies on climate and environment, as well as diversity, “could lead to enforcement actions.”
As power has changed in Washington, financial firms have walked back their messaging and participation in climate action groups. The complaint in the Texas case noted that BlackRock and State Street had already withdrawn from a trade association known as Climate Action 100+. (Vanguard had not been a member.) The firms have also exited the Net Zero Asset Managers Initiative, which had been a target of criticism from the right.
Just last week, the Texas comptroller, Glenn Hegar, removed BlackRock from the list of companies his office had accused of boycotting the oil and gas industry. The blacklist bars retirement funds for Texas public employees from investing with the firms. Mr. Hegar pointed to the firm’s exits from the climate networks in the announcement.
On Monday, Mr. Costa called on Judge Jeremy D. Kernodle in the U.S. District Court for the Eastern District of Texas to dismiss the complaint. He said that allowing the case to continue would impose heavy financial burdens on the defendants, and also on the coal companies in question, as they went through the time-consuming and costly process of discovery, or exchanging information about evidence and witnesses that would be used at trial.
Mr. Costa said there was no allegation that the defendants had taken specific actions to reduce coal output. He added that coal was only a small part of the portfolios of the asset managers and that they have far greater investments in companies that consume electricity.
Mr. Barnes, the lawyer representing the states, pointed to a letter from Mr. Fink, the BlackRock chief executive and once an outspoken proponent of climate action, asking companies to set targets for greenhouse gas reductions. He said the firms “had a declared policy of basically leveraging their shares to try to push ‘carbon-intensive industries’ to set targets in alignment with the Paris Agreement,” referring to the pact among nations to limit damage from climate change by reducing greenhouse gases.
The burning of fossil fuels like coal produces carbon dioxide that is dangerously warming the planet because, once released into the atmosphere, it acts like a blanket, trapping the sun’s heat.
David Lawrence, policy director for the Justice Department’s antitrust division, also appeared before the judge on behalf of his agency and the Federal Trade Commission. The agencies wrote in a brief to the court last month that actions alleged could reduce competition and raise prices for consumers.
Before the judge, he presented a scenario in which an influential investment firm could encourage airlines to not offer as many flights, or a cellphone company to not give out free phones. “We think it’s critically necessary that the harms to consumers that would result be prevented,” he said.
In a statement after that brief was filed, BlackRock said the government’s support for the “baseless” case undermined the Trump administration’s stated goal of American energy independence. “This case is trying to rewrite antitrust law and is based on an absurd theory that coal companies conspired with their shareholders to reduce coal production,” the statement said.
As the judge concluded the hearing, he said he owned shares, like many Americans, in Vanguard funds. He said he did not believe it precluded him from hearing the case, but was disclosing the information in case any of the parties would argue otherwise.
Karen Zraick covers legal affairs for the Climate desk and the courtroom clashes playing out over climate and environmental policy.
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