Conservative U.S. lawmakers have taken aim at the use of environmental, social and governance (ESG) factors in investing over recent years. Investors say they use ESG criteria to manage financial risks tied to things like climate change and human rights. But conservatives claim these considerations dampen investor returns, wrongfully harm legacy industries like coal, and may even constitute illegal antitrust. Those are bold claims, but as a recent settlement with Vanguard shows, ESG critics have yet to prove their case in a court of law, and they may well lose in the court of public opinion.
A win for coal, or not
In November 2024, Texas State Attorney General Ken Paxton filed a federal lawsuit accusing the asset managers BlackRock, State Street and Vanguard of illegally colluding to harm the U.S. coal industry.
By joining business coalitions like the Net Zero Asset Managers Initiative, which rallies investors to engage with portfolio companies about climate risk, the financial giants signaled their “mutual intent to reduce the output of thermal coal, which predictably increased the cost of electricity for Americans,” Paxton said in a statement about the lawsuit, which was joined by 10 other state AGs.
With U.S. President Donald Trump elected for a second term just weeks before, Paxton’s group could depend on the incoming administration to support them. Accordingly, last May the Federal Trade Commission and the Department of Justice filed a “statement of interest” supporting Paxton’s suit.
While litigation against BlackRock and State Street continues, Vanguard recently agreed to a $29.5 million settlement without admitting wrongdoing. “The terms of the agreement to settle this litigation reaffirm our longstanding practices and standards and the passive nature of our index funds,” Vanguard stated, reflecting a cautious declaration of a victory for ESG investment screens in an anti-ESG environment.
Paxton, of course, also declared victory. “This landmark settlement represents one of the most significant enforcement actions ever taken against coordinated ESG-driven market manipulation,” his office declared at the end of February.
So, who won? In a recent analysis, partners at the prestigious U.S. law firm Ropes & Gray noted that while the AGs were quick to claim victory, “a closer look at the settlement terms tells a different story: the commitments to which Vanguard agreed largely reflect current industry norms and standard stewardship practices the asset management industry has long embraced as a matter of course.”
However, they say Paxton earned public relations points. Vanguard agreed to withdraw from the Principles for Responsible Investment and abstain from decarbonization networks including the Net Zero Asset Managers Initiative, Ceres and Climate Action 100+. “This appears to be the real target of the settlement — restricting membership in industry coalitions,” Ropes & Gray emphasized.
Similarly, Sarah Wilson, CEO and founder of the U.K. sustainable investing advisory group Minerva Analytics, noted that while a settlement is not a legal finding of fault, Vanguard’s could have a chilling effect on ESG investing by making it appear that “ESG” is synonymous with “unlawful coordination.”
These experts raise serious concerns regarding public perception. But their analyses were posted days before the U.S. and Israel launched a war in Iran, spiking the price of energy worldwide.
What’s really driving the cost of coal
Energy price shocks tied to the war underscore the foundational lie that supports Paxton’s lawsuit. Paxton argues that the “BlackRock-led cartel” of large asset managers aims to “drive up the price of coal under the guise of ‘green energy.’” However, the war demonstrates that energy prices can and do change for a host of reasons that have nothing to do with so-called “woke” investors.
For example, rising oil prices could soon ripple into the cost of U.S. coal power. Transportation fuels account for around 40 percent of the cost of coal delivered to power plants, the U.S. Energy Information Agency calculated in a 2022 analysis.
“Most coal is transported by train, barge, truck, or a combination of these modes,” EIA explains. “Increases in oil and diesel fuel prices can significantly affect the cost of transportation, which affects the final delivered price of coal.”
Competition from natural gas is another factor that was pushing coal aside for years before groups like the Net Zero Asset Managers Initiative even existed. More than 100 coal-fired power plants were replaced by or converted to natural gas between 2011 and 2020, according to the EIA. In Paxton’s home state of Texas, coal accounted for a respectable 35 percent share of power generation in 2014. Just 10 years later, that number was down to just 12 percent, while natural gas commanded over half of all power generated in the state.
Wind and solar are now the most accessible and economically beneficial power generation resources in the U.S., as reflected by the strong performance of renewable-friendly states like California and, ironically enough, Texas.
Red State rhetoric aside, Texas has long led U.S. states in wind power capacity, and its solar profile is rapidly increasing. Wind now accounts for 22 percent of power generation in Texas, compared to 12 percent for coal. The Federal Reserve Bank of Dallas notes that solar accounted for the largest share of new power generating capacity in Texas last year, while coal failed to register at all.
In addition to external pressures tied to natural gas competition and fluctuating fuel prices, coal producers in Texas face a crippling structural limitation. The state’s coal mines only produce lignite, a type of low-heat coal that is particularly sensitive to transportation costs. For that reason, lignite is used almost exclusively by power plants located near lignite mines.
“Lignite coal is an especially dirty power source,” adds the Environmental Defense Fund. “It contains higher levels of mercury and other toxics than other types of coal, and more lignite coal must be burned to generate power compared to other types of coal, which then produces even more emissions.”
Another energy crisis and the staying power of ESG principles
In sum, Paxton and his allies seek to defend an economically outdated and unwieldy source of power generation at a time when war has underscored the urgent need to invest in domestic energy resources that are buffered from global commodities volatility. That is exactly the point made by proponents of ESG principles — not as the sole deciding factor in investment decisions, but as a way to account for (and act on) a broader range of long-term financial risks and opportunities.
The roots of today’s ESG principles trace back to the 1970s when the U.S. economy was rocked by an oil embargo imposed by the Organization of Petroleum Producing Countries (OPEC) in the Middle East.
Now in 2026, another oil crisis looms. Paxton and his Republican allies in office can keep on lying to the American public about ESG investing, and they will. However, the latest oil price shock only demonstrates how far his party has drifted from the reality of today’s energy markets, and from its former identity as the champion of business.
Image credits: U.S. Navy Photo, CSU/CIRA & NOAA/NESDIS via Wikimedia Commons, Victoria Pickering/Flickr
