On Friday, the Court in Texas v. Blackrock issued an opinion largely denying defendants’ motion to dismiss, which allows a coalition of States to proceed with claims that BlackRock, State Street, and Vanguard conspired to violate the antitrust laws by pressuring publicly traded coal companies to reduce output in connection with the investment firms’ ESG commitments. The Court found that the States plausibly alleged that defendants coordinated with one another, relying on allegations that they joined climate initiatives, made parallel public commitments, engaged with management of the public coal companies, and aligned proxy voting on disclosure issues. It is worth noting that, while the court viewed BlackRock’s, State Street’s, and Vanguard’s participation in Climate Action 100+ and NZAM as increasing the plausibility of the claim in favor of denying the motion to dismiss, the Court clarified that it was not opining that the parties conspired at Climate Action 100+ or NZAM.
The decision is novel in the sense that it allows claims to proceed against minority shareholders for agreeing with one another on how to manage competing companies in the same industry. While the States chose not to bring claims against the coal companies themselves, publicly traded companies that knowingly work with one or more shareholders to decrease production output, raise prices, or change production inputs across competing firms are at risk of being held liable for joining a conspiracy. The reasoning of the opinion suggests that a conspiracy joined by the publicly traded firms would potentially be a per se unlawful antitrust conspiracy even if motivated by a desire to meet emissions targets or environmental goals. Beyond the specific facts of this case, we expect there may be increased focus by plaintiffs on analogous scenarios going forward, including companies with shared ownership (including through multiple unaffiliated institutional investors) making parallel changes or companies changing practices to follow other companies and/or industry trends in response to pressure from the same shareholders.
The decision also relies on public Scope 3 emissions disclosures that the companies made in response to shareholder pressure both to support the output reduction conspiracy claim and a separate claim for unlawful exchange of competitively sensitive information. The States argued that the Scope 3 emission disclosures allowed competitors to easily derive future coal production plans and that companies were able to use that information to ensure that output decreased.
As noted above, this is just an initial decision denying the defendants’ motion to dismiss, and a decision on the facts will not be made until summary judgment at the earliest. However, companies should consider the implications of this initial decision when shareholders that may own minority stakes across publicly traded competitors ask companies to commit to changes that would reduce output or to disclosures that would allow competitors to reverse engineer competitively-sensitive information such as future output. While companies can consider what others in the industry have publicly announced, each company must always make its own independent decisions about pricing, output, and business strategy based on what is in its own interest. Companies may be taking on greater risk when they take an action advocated by one or more shareholders (or other climate change advocates) that are also lobbying for actions at competing firms. Companies should avoid engaging with their competitors and overlapping shareholders in a group setting, or taking action because shareholders promise that they will also pressure competing firms to act similarly. The Texas case provides new contours to risk of a finding of collective action through industry or other groups, by including shareholders as a nexus to potential coordination.
Similarly, we expect shareholders may also refresh their engagement effort strategies in light of this case and take a more conservative, thoughtful and tailored approach to outreach with each company to avoid any optics of coordination among themselves or among their portfolio companies. Coupled with the recent 13D/13G rule changes, the potential for conspiracy liability stemming from this decision may have a cooling effect on engagement frequency and soften the pressure that shareholders place on companies to make changes in line with their policies.
This article was republished by Harvard Law School Forum on Corporate Governance and Insights.