Attor­ney Gen­er­al Pax­ton Secures His­toric, Indus­try-Chang­ing Agree­ment with Van­guard to Pro­tect the Coal Indus­try and Empow­er Investors

Attorney General Ken Paxton secured a monumental, first-of-its-kind settlement with The Vanguard Group, Inc. (“Vanguard”), resolving part of his multistate lawsuit against asset managers BlackRock, State Street, and Vanguard. As part of the settlement, Vanguard has agreed to make the strongest passivity commitments in the industry and to empower its investors with proxy voting—a first for the industry. This landmark settlement represents one of the most significant enforcement actions ever taken against coordinated ESG-driven market manipulation, ensures a competitive and low-cost coal industry, and fundamentally resets the precedent for the conduct of large institutional investors.

Attorney General Paxton’s lawsuit seeks to lower the cost of coal—and, thereby, electricity prices—throughout the United States by combatting a BlackRock-led cartel that sought to drive up the price of coal under the guise of “green energy.” BlackRock’s efforts produced massive profits for itself and its co-conspirators and raised the prices of electricity on consumers throughout the United States. To further profit on the back of Americans, BlackRock also deceived thousands of its investors who elected to invest in non-ESG funds. The Trump Administration’s Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) have taken legal action to support Attorney General Ken Paxton’s lawsuit by filing a joint statement of interest.

“I am glad to see that Vanguard has chosen to protect investors and become the industry leader when it comes to empowering investors with proxy voting choice. This sets a new standard for institutional investors that every company should follow,” said Attorney General Paxton. “While Vanguard has taken appropriate action to resolve this case, Blackrock and State Street have continued to ignore state laws, engage in anticompetitive schemes that hurt American energy, and undermine those who use their services to invest. Coal is an essential industry to support America’s ever-growing energy demands, and my office will continue to uproot and destroy any attempt by investment giants to push a woke agenda that puts American energy at risk.”

Under the first-of-its-kind settlement negotiated by Attorney General Paxton, Vanguard has committed to avoid imposing ESG goals over its customers’ profitability. For example, Vanguard will not use its shareholdings to (a) direct its portfolio companies’ business strategies, (b) threaten its portfolio companies that it will withdraw from its holdings unless they agree to act (or not act) in some manner, or (c) nominate directors or shareholder proposals to its portfolio companies. Vanguard has also agreed to pay $29.5 million to the states.

In addition, Vanguard will for the first time offer proxy voting to investors in funds accounting for at least 50% percent of assets invested in U.S. equity funds it advises. This will ensure that Vanguard’s customers can make their voices known on portfolio companies’ business, including whether companies should maximize profitability over ESG or other goals.