Vanguard Settles With States for $29.5M in Coal Stock Manipulation Complaint

The Vanguard Group Inc. agreed to pay $29.5 million and implement proxy voting reforms to resolve a complaint that alleged anti-competitive practices by asset management firms and that they misled investors regarding funds that do not consider environmental, social and governance factors. BlackRock Inc. and State Street Corp. were also named in the complaint, but neither has settled.

As part of the settlement, Vanguard agreed to provide proxy voting choices, including the option to vote in line with management recommendations. Vanguard will offer proxy voting to investors in funds accounting for 50% of its assets invested in U.S. equities for the funds it advises. Vanguard will also maintain the availability of proxy voting choice to these investors at least through June 2032.

Further, Vanguard agreed to cast shareholder votes related to equity investments by U.S. Vanguard-advised funds “solely to further the financial interests of investors in those funds” and “will not direct or attempt to direct the business strategies or operations of portfolio companies, and will not advocate to any portfolio company that it take any particular course of conduct to reduce carbon emissions.”

Fiona Reynolds, the chair of Australian Ethical Investment and the former CEO of Principles for Responsible Investment, criticized the settlement in a LinkedIn post, insisting that climate risk is financially material.

“As we know—physical damage, transition costs, regulatory change, technological disruption affect valuations and portfolio performance,” she said. “Recognizing that is not activism. It’s about managing investment, risks and opportunities. If the industry truly believes that, it should be able to say so clearly.”

Meanwhile, Texas Attorney General Ken Paxton—whose state was the lead plaintiff in the complaint—said the settlement marked a significant enforcement action.

“I am glad to see that Vanguard has chosen to protect investors and become the industry leader when it comes to empowering investors with proxy voting choice,” Paxton said in a statement. “This sets a new standard for institutional investors that every company should follow.”

The Complaint

The case, State of Texas et al. v. BlackRock Inc. et al., heard in U.S. District Court for the Eastern District of Texas, remains pending against BlackRock and State Street.

The complaint, originally filed in November 2024, shortly after President Donald Trump won the presidential election, was brought forth by Republican attorneys general from 11 states: Texas, Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia and Wyoming.

The complaint alleges that the asset managers acquired substantial holdings in U.S. coal companies and used their influence to push those companies toward adopting green energy goals. The states further claim that the asset managers leveraged their involvement in organizations such as Climate Action 100+ and the Net Zero Asset Managers Initiative to publicly signal their efforts to reduce coal production. According to the plaintiffs, these actions contributed to increased costs for coal-powered electricity.

Electricity prices have become a fraught political issue as energy prices have soared, the rise further fueled by data centers required to power artificial intelligence computing . According to the latest Consumer Price Index report, released February 13, electricity prices increased 6.3% year from January 2025 to January 2026.

Republicans’ Continued Anti-ESG Push

Perhaps more consequently, however, Vanguard’s settlement also continues the fierce focus from Republicans on cracking down on ESG initiatives.

Thus far, Trump’s Department of Labor has pledged to craft a new ESG rule regarding investments selected for inclusion in retirement plans, and the House of Representatives passed a bill that would make it harder for fiduciaries to consider ESG factors when making investment decisions. The bill is unlikely to be passed by the Senate.

“Vanguard has a singular purpose of helping more than 50 million people and their families achieve their financial goals,” a Vanguard spokesperson said. “We’ve reached a resolution to put this matter behind us—a resolution that reaffirms our longstanding practices and standards and the passive nature of our index funds. Our agreement to resolve this matter recognizes our innovative Investor Choice program as a tool for empowering investors and bringing new voices into the proxy voting ecosystem.”