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Texas and other Republican-led states suing fund managers

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Three companies manage more than $26 trillion in assets

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Companies say they did not vote in tandem on proxies

(Adds details from the complaint, comment from a Rutgers

professor, and context about the anti-ESG backlash)

By Shivani Tanna and Ross Kerber

March 17 (Reuters) -

BlackRock ( BLK ), Vanguard and State Street have

asked a federal court in Texas to dismiss a state lawsuit

accusing the top fund managers of conspiring through climate

activism to discourage coal output, with the firms saying the

allegations rest on "half-baked and untested" legal theories.

"To find that Plaintiffs have stated an antitrust claim on

these alleged facts requires contorting the law in a way that

would hurt both coal companies and individual investors," the

asset managers told the judge, asking the court to reject this

"adventurous attempt to rewrite antitrust law."

The closely watched case, led by Texas Attorney General Ken

Paxton, offers no examples of the companies ever telling a coal

company to reduce output, the fund managers said.

Industry analysts have been watching to see how strongly the

companies would push back on what the defendants called a first

of its kind suit filed by Texas and other Republican-led states.

There are now 13 plaintiffs.

"This is a hard-hitting response that levels some strong

rebuttals of the complaint" said Michael Carrier, a Rutgers Law

School professor, via e-mail. Among other things, the companies

show a lack of communication and differences in proxy voting

that will make it hard for the plaintiffs to show they made

agreements among themselves, Carrier said.

Paxton's office did not immediately respond to a request

for comment.

The suit is part of a wave of pressure on the firms from

conservative U.S. politicians, many from energy-producing

states. Among other things, they have alleged that the firms'

cooperation in industry net-zero groups amounts to collusion.

With more than $26 trillion in assets, the three firms

through influential proxy votes have become major voices in how

U.S. companies pay executives, elect directors and set

environmental, social and governance (ESG) policies. Lately they

have been in retreat under Republican pressure, withdrawing from

industry climate efforts and cutting diversity goals.

The suit marks the first time they have faced

significant antitrust claims tied to their ESG efforts. In

Monday night's joint motion they formed a united front against

the idea and called their activities "commonplace" ones for

products like index funds that are "the core ingredients

allowing asset managers to provide the low-cost funds that

millions of Americans rely on to save for retirement and other

purposes."

For instance, the companies said that while BlackRock ( BLK ) and

State Street voted against reelecting a few coal company

directors, they never voted as a block and said the directors

were reelected anyway. Vanguard never voted against coal company

management or directors.

The companies also wrote that coal output actually rose

since 2021 according to the complaint's details, and that their

proxy votes did not correlate with production trends.

"There is not the slightest indication that any

Defendant was prodding the coal companies to reduce output, much

less that all of them were doing so in collaboration," the

motion states.

The case is Texas et al v BlackRock Inc ( BLK ) et al, U.S. District

Court, Eastern District of Texas, No. 24-00437.