Vanguard to Pay $29.5 Million, Limit Proxy Power in Texas-Led ESG Antitrust Settlement

Vanguard has agreed to pay $29.5 million and accept sweeping limits on how it uses its voting power in corporate boardrooms, resolving its part of a Texas-led antitrust lawsuit that turns environmental, social and governance investing into a competition-law fight.

Settlement ends Vanguard’s role in case targeting big index managers

The settlement, announced Feb. 26 by Texas Attorney General Ken Paxton and highlighted March 2 by Alabama Attorney General Steve Marshall, ends Vanguard’s role in a federal case accusing the three dominant U.S. index-fund managers of conspiring to restrict coal production and drive up prices. BlackRock Inc. and State Street Corp. remain defendants and are continuing to fight the claims.

In exchange for being dropped from the case, Vanguard did not admit wrongdoing but agreed to pay the multistate coalition and to adopt what Paxton called “strong passivity commitments” that change how one of the world’s largest shareholders may engage with companies, especially in the fossil fuel sector. The deal marks the first time a major U.S. asset manager has settled an antitrust case tied explicitly to ESG coordination.

The lawsuit and the states’ claims

The lawsuit was filed Nov. 27, 2024, in the U.S. District Court for the Eastern District of Texas. Texas and 12 other Republican-led states — Alabama, Arkansas, Iowa, Indiana, Kansas, Louisiana, Missouri, Montana, Nebraska, Oklahoma, West Virginia and Wyoming — alleged that Vanguard, BlackRock and State Street used overlapping stakes in coal companies and joint climate commitments to “artificially depress” coal output and raise electricity prices.

According to the complaint, the asset managers acted through high-profile investor coalitions, including Climate Action 100+ and the Net Zero Asset Managers initiative, to push publicly traded coal producers to cut emissions and scale back production. The states claim those efforts amounted to a form of cartel behavior prohibited by Section 1 of the Sherman Act and Section 7 of the Clayton Act, as well as by state antitrust laws.

The firms have denied collusion. Vanguard has said it is a passive investor that tracks market indexes and engages with portfolio companies to protect long-term value, not to run their businesses. BlackRock and State Street have called the case baseless and say there is no evidence they agreed to limit coal output.

Federal regulators weigh in

Federal antitrust regulators gave the case added weight in May 2025, when the Justice Department and the Federal Trade Commission filed a statement of interest siding with the states on key legal issues. In that filing, the agencies argued that large asset managers “may be held liable under Section 7 of the Clayton Act when they use their stock holdings in multiple competitors to achieve anticompetitive goals,” and said that pursuing social or environmental objectives does not shield such conduct from antitrust scrutiny.

The case survived a round of motions to dismiss in 2025, putting pressure on defendants to choose between extended litigation and settlement talks. Vanguard, which manages roughly $12 trillion in assets, moved first.

What Vanguard agreed to

Under the agreement described by Paxton and Marshall, Vanguard will pay $29.5 million to the plaintiff states to support enforcement and consumer relief efforts. More significantly for the market, it accepted a series of behavioral terms designed to curb how it can use its voting power and public commitments.

Vanguard has agreed “to avoid imposing ESG goals over its customers’ profitability,” Paxton said in a statement. The attorneys general say that provision locks in financial returns as the primary objective when Vanguard votes shares or engages with corporate boards.

The firm also pledged that it will not use its influence to “direct the business strategies” of companies in its funds, will not threaten to sell its holdings to force specific corporate actions, and will not nominate directors or submit its own shareholder proposals at portfolio companies, according to the states’ descriptions of the deal.

In a move with potential ripple effects for corporate governance, Vanguard committed for the first time to allow clients to directly influence proxy votes on a broad scale. The settlement requires Vanguard to offer investors in funds that account for at least 50% of the assets in U.S. equity funds it advises some form of say over how their shares are voted. That could include pass-through voting or choice among preset voting policies.

Political backdrop and Vanguard’s response

Texas and Alabama cast the terms as a major victory over what they describe as “woke” finance.

Paxton called the agreement a “historic, industry-changing” deal that “ensures a competitive and low-cost coal industry” and “fundamentally resets the precedent for the conduct of large institutional investors.” In his March 2 news release, Marshall said ESG investing “elevates goals like reducing carbon emissions, promoting gender and racial diversity, and achieving social justice benchmarks above the fiduciary duty to maximize returns,” and argued the settlement “sends an unambiguous message that coordinated efforts to subordinate investor returns to political objectives will face legal consequences.”

Vanguard, based in Malvern, Pennsylvania, emphasized continuity rather than change. The firm said the settlement “allows us to put this distraction behind us and focus on what matters — giving our investors the best chance for investment success,” and that it “reaffirms our longstanding practices and standards and the passive nature of our index funds.”

The company had already pulled back from high-profile climate initiatives before the suit advanced. In December 2022, Vanguard withdrew from the Net Zero Asset Managers initiative, citing a desire to clarify its independence and its focus on index investing amid growing political scrutiny. In recent proxy seasons, the firm reported supporting little to none of the environmental and social shareholder proposals at U.S. companies that it had backed more frequently earlier in the decade.

Broader ESG pushback—and a new legal approach

The multistate case comes after several years of Republican-led efforts to counter ESG policies through state law and investment decisions. States including West Virginia, Louisiana and Florida have withdrawn billions of dollars from BlackRock and other managers over their climate positions. Texas enacted Senate Bill 13 in 2021, barring state entities from contracting with or investing in firms deemed to boycott fossil fuel companies.

That strategy has run into constitutional limits. On Feb. 4, a federal judge in the Western District of Texas struck down SB 13, ruling that the law violated the First and Fourteenth Amendments, in part because its definitions were vague and targeted protected speech. Similar laws in other states are facing challenges.

By turning to federal and state antitrust statutes, the Texas-led coalition is testing a different legal avenue that does not hinge on the content of a firm’s speech but on whether investors used their ownership positions and alliances to influence market outcomes. The Justice Department and FTC’s intervention signals that federal regulators are prepared, at least under current leadership, to examine the competitive impact of “common ownership” by large asset managers.

What comes next

Economically, the states argue that between about 2019 and 2022, overlapping ownership and coordinated climate commitments helped push coal producers to reduce output, contributing to higher prices for electricity consumers while boosting revenues for coal companies and fee income for the managers. The defendants counter that coal production and prices are driven by a range of factors, including demand shifts and regulation, and say there is no evidence that their stewardship caused specific production cuts.

The longer-term impact of Vanguard’s settlement may depend on how it is implemented and on what happens next in the case against BlackRock and State Street. Expanding investor control over proxy voting could weaken the ability of any single asset manager to steer corporate policy on climate or other issues, as millions of individual and institutional clients apply differing preferences.

At the same time, the antitrust scrutiny may cause large investors to reassess their roles in collective initiatives such as Climate Action 100+, which seek sector-wide commitments from companies on emissions and strategy. Some climate-policy advocates have warned that if investor coalitions are treated as potential cartels, companies and shareholders may be less willing to coordinate on climate risk even when they believe it is financially relevant.

For now, Vanguard has bought certainty at a relatively modest price tag in the context of its overall business, while its two rivals continue to fight a case that could shape not only the future of ESG investing but also how far diversified shareholders can go in trying to influence the direction of entire industries.