Texas Attorney General Ken Paxton has reached a settlement with The Vanguard Group Inc. that resolves part of a multistate lawsuit accusing major asset managers of manipulating markets through environmental, social, and governance policies.
The agreement requires Vanguard to adopt what Paxton described as the industry’s strongest passivity commitments and, for the first time, offer proxy voting options to investors in funds representing at least 50% of assets in U.S. equity funds it advises.
This allows customers to influence portfolio companies on issues like prioritizing profitability over ESG goals.
The deal marks a significant enforcement step against alleged coordinated ESG efforts that Paxton said drove up coal prices under the banner of green energy, harming consumers with higher electricity costs.
Vanguard also agreed to pay $29.5 million to the states involved.
“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 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,” Paxton added.
Under the terms, Vanguard commits not to use its holdings to steer portfolio companies’ strategies, threaten divestment to force actions, or nominate directors or shareholder proposals. The settlement aims to foster a competitive coal sector and lower energy costs by countering what Paxton called a BlackRock-led cartel that profited from inflated prices while misleading non-ESG fund investors.
The Justice Department and the Federal Trade Commission, under the Trump administration, filed a joint statement backing Paxton’s suit, which continues against BlackRock and State Street.
“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,” stated Paxton in the press release.
