Under a settlement with a handful of U.S. state attorneys general, U.S. fund giant Vanguard Group Inc. agreed to pay US$29.5 million and to make changes to investors’ proxy voting options to resolve a lawsuit targeting fund managers’ ESG investing.
The fund firm settled its part of a multi-state lawsuit against a trio of large asset managers — BlackRock, State Street and Vanguard — alleging, among other things, that they used their combined market power to curb the output of the coal industry, and to engage in anti-competitive behaviour.
Under the settlement, Vanguard agreed to make a payment to the states and to adopt a new proxy voting policy that will give investors in Vanguard-advised funds in the U.S. the option of voting with management recommendations. The proxy voting changes are to start in 2027, and to remain in place through at least mid-2032.
The firm also agreed to only engage in shareholder engagement activities and to cast shareholder votes to promote long-term shareholder value at its portfolio companies, “including corporate governance practices and structures, the board’s oversight processes and the disclosure of material risks as required by the Securities and Exchange Commission.”
The company settled the lawsuit without admitting to any wrongdoing.
“We made the decision to settle the litigation filed by the Texas attorney general and other states with our investors’ best interest in mind as it allows us to put this distraction behind us and focus on what matters — giving our investors the best chance for investment success,” Vanguard said in a statement.
“The terms of the agreement to settle this litigation reaffirm our longstanding practices and standards and the passive nature of our index funds,” it added.
Texas attorney general Ken Paxton said, “This landmark settlement represents one of the most significant enforcement actions ever taken against coordinated ESG-driven market manipulation, ensures a competitive and low-cost coal industry and fundamentally resets the precedent for the conduct of large institutional investors.”
“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,” he added.