Dive Brief:
- Vanguard entered a settlement with Texas and 10 other Republican-led states last week to end litigation alleging the asset manager violated antitrust laws and colluded with BlackRock and State Street to “artificially constrict” the coal market, Texas Attorney General Ken Paxton announced Thursday.
- Vanguard did not admit to any wrongdoing or illegal conduct, but the settlement will require the firm to pay the 11 suing states $29.5 million, expand its investor choice program and have its U.S.-based businesses refrain from joining groups with “climate-focused investment or stewardship objectives.”
- After reaching a settlement with Vanguard, Paxton accused BlackRock and State Street of ignoring state laws and engaging “in anticompetitive schemes that hurt American energy” in the press release.
Dive Insight:
Vanguard said in a Feb. 26 statement that it decided to settle with its “investors’ best interests in mind” and that the settlement lets the firm “put this distraction behind us and focus on what matters.”
The suit alleging various violations of antitrust laws and deceptive marketing practices is also backed by Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia and Wyoming.
Paxton and the coalition of states first sued BlackRock, Vanguard and State Street in December 2024, alleging the three largest U.S. asset managers had bought “substantial” holdings in public coal companies and were conspiring to get those companies to restrict their output. The three firms filed a joint motion to dismiss the charges in March 2025, which was denied in August. The Federal Trade Commission and Department of Justice weighed in on the case last May, supporting the states’ argument.
The settlement requires Vanguard to use "commercially reasonable efforts” to expand its investor proxy choice program — launched in February 2023 — to any fund with over half of its assets invested in U.S. equities by the end of June 2027. The firm also agreed to continue offering the proxy choice voting program until at least the end of June 2032, according to the settlement.
“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,” Paxton said in the Feb. 26 release. “This sets a new standard for institutional investors that every company should follow.”
Over 20 million index fund investors were eligible for Vanguard’s investor choice program as of the end of 2025, in funds with over $3 trillion in assets under management, Vanguard said in its statement.
“The terms of the agreement to settle this litigation reaffirm our longstanding practices and standards and the passive nature of our index funds,” Vanguard said. “The settlement also recognizes our innovative Investor Choice program as a tool for empowering investors and bringing new voices into the proxy voting ecosystem.”
A spokesperson for State Street Investment Management told ESG Dive that the underlying lawsuit “remains baseless and without merit.” BlackRock declined to comment for this story.
“There was not, and is not, any collusion here aimed at coal prices,” the State Street spokesperson said in emailed comments Friday. “This settlement does not change that. In fact, State Street has a well-established commitment to investor voting choice.”
As part of its settlement, which Paxton’s office called a “first-of-its-kind” in the release, Vanguard committed to a level of “passivity” in how it manages U.S. equity investments. Among them, Vanguard committed to “not direct or attempt to direct” portfolio companies’ business strategies or operations, or advocate for a portfolio company to “take any particular course of conduct to reduce carbon emissions,” according to the settlement.
Vanguard also agreed to not nominate directors or make shareholder proposals at portfolio companies; won’t threaten to sell of securities of portfolio companies to push them to make specific actions or nonactions; and notify companies before engagement that “Vanguard-advised funds have no intent to influence company strategy or operations or the control of the company,” according to the settlement.
The firm will also be required to tell firms they engage with that their engagements are not “intended to imply that our support for any director is conditioned upon the company taking action on any matter discussed.”
In November, Vanguard announced that it would withdraw all of its U.S.-based businesses from the United Nations-backed Principles for Responsible Investment — a move that was cited as a condition of last week’s settlement. Vanguard also agreed not to participate in “any organization that advocates for the setting of specific output or emissions targets.”
