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 Datacentre 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, 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 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 et al, U.S. District Court, Eastern District of Texas, No. 24-00437. (Reporting by Ross Kerber in Boston and Shivani Tanna in Bengaluru; Editing by Muralikumar Anantharaman and David Gregorio)