In November 2024, a Texas-led coalition of thirteen states sued three of the world’s largest investment firms, BlackRock, State Street, and Vanguard Group, claiming the firms violated antitrust and consumer protection laws by buying significant amounts of stock in coal companies and then using their market power to decrease coal production but increase their own profits. The investment firms moved to dismiss. On Friday, August 1st, the states notched a win when the court largely rejected the motion to dismiss brought by the investment firms.

The investment firms argued that they were merely passive investors in the coal companies, while the states alleged that the firms collectively pressured companies to depress the output of coal in an effort to achieve goals and commitments made as part of climate initiatives and execute certain ESG strategies. At the same time output was restricted, however, the demand for coal increased, thus raising the price, resulting in handsome profits.

In rejecting the motion to dismiss, the federal court concluded that the states had sufficiently stated a claim against the scheme to depress output, decrease competition, and increase profits. Specifically, the alleged facts state a plausible violation of the Clayton Act, provide circumstantial evidence of a conspiracy under the Sherman Act, and set out claims for consumer protection violations under Texas, Montana, Iowa, and Nebraska law.

State attorneys general have spent the last four years warning companies that efforts to further ESG and DEI goals could run afoul of the law. This latest decision emphasizes the point.