Vanguard has agreed to pay $29.5 million to settle a high-profile lawsuit brought by Texas and a group of Republican-led states accusing the asset manager and its largest rivals of conspiring to curb coal production through environmental, social and governance (ESG) initiatives.
The settlement leaves BlackRock and State Street to continue defending the case. Vanguard, which oversees approximately $12 trillion in assets, did not admit any wrongdoing as part of the agreement.
The lawsuit, filed in 2024, alleged that the three largest US index fund managers used their substantial influence as passive investors to promote net zero carbon goals. According to the states, the firms leveraged proxy voting and other forms of shareholder engagement to pressure coal companies into cutting output, contributing to higher energy prices.
The asset managers have denied the claims, arguing in court filings that there is no evidence they co-ordinated efforts to limit coal production or collectively pushed companies to reduce emissions.
People familiar with the matter said Vanguard opted to settle in order to avoid potentially tens of millions of dollars in legal costs and to remove what it viewed as a distraction.
“We’ve reached a resolution to put this matter behind us,” Vanguard said in a statement, adding that the agreement “reaffirms our longstanding practices and standards and the passive nature of our index funds”.
Although the case centres on coal production, it has been closely watched across Wall Street for its potential implications for the wider investment industry. A ruling in favour of the states could significantly alter how passive fund managers engage with companies, exercise proxy votes and participate in industry coalitions.
Texas Attorney-General Ken Paxton described the settlement as setting “a new standard for institutional investors”. He said coal remains “an essential industry to support America’s ever-growing energy demands” and pledged to continue opposing what he characterised as efforts by investment firms to advance a “woke agenda”.
The legal battle comes amid a broader political backlash against ESG investing in the United States. Republican-led states have increasingly challenged asset managers over climate-related commitments, while many Wall Street firms have scaled back public environmental pledges in response to mounting political and legal pressure.
BlackRock and State Street had previously sought to have the case dismissed, describing it as “unprecedented” and warning it could upend established approaches to corporate governance. In August, however, a judge largely rejected that request, allowing the litigation to proceed.
