Paxton-Vanguard reaches $29.5 million settlement following successful proxy voting

Texas Attorney General Ken Paxton recently finalized a settlement with The Vanguard Group Inc. as part of a larger lawsuit involving allegations of market manipulation by major asset managers through environmental, social, and governance policies. This agreement with Vanguard includes a commitment to adopting some of the most robust passivity standards in the industry. Also, for the first time, Vanguard will offer proxy voting options to investors in funds that make up at least half of the assets in U.S. equity funds it advises. This decision allows investors to have a say in influencing the decisions of portfolio companies, particularly in matters like prioritizing profitability over ESG objectives.

The settlement represents a significant move to address the alleged coordinated efforts in ESG practices that, according to Paxton, led to increased coal prices under the guise of promoting green energy. This, in turn, resulted in higher electricity costs for consumers. Vanguard has agreed to a settlement amount of $29.5 million across the participating states.

Paxton expressed his satisfaction with Vanguard’s decision to protect investors and set a new benchmark in offering proxy voting choice to its investors. He highlighted the importance of this move, emphasizing that it should serve as an example for other institutional investors to follow. Despite Vanguard’s efforts to resolve the case, Paxton criticized BlackRock and State Street for their continued disregard of state laws, participation in practices that harm American energy, and failure to address anticompetitive behaviors.

The terms of the settlement require Vanguard to refrain from utilizing its holdings to influence the strategies of portfolio companies, using divestment as a means to enforce actions, or nominating directors or shareholder proposals. The ultimate goal of this agreement is to promote competition within the coal sector and help lower energy costs by combating what Paxton described as a coalition led by BlackRock that profited from inflated prices while deceiving non-ESG fund investors.

During the Trump administration, the Justice Department and the Federal Trade Commission issued a joint statement in support of Paxton’s lawsuit, which remains ongoing against BlackRock and State Street. Paxton reiterated the importance of the coal industry in meeting America’s energy needs and pledged to continue opposing any efforts by investment giants to advance agendas that jeopardize American energy security.

The settlement with Vanguard signifies a significant step in addressing allegations of market manipulation through ESG practices and highlights the importance of ensuring fair competition within the energy sector. Paxton’s ongoing efforts to hold major asset managers accountable for their actions underscore the importance of upholding transparency and ethical practices within the financial industry.