Texas v. BlackRock (E.D. Tex.) (BlackRock), a case in which 11 states claim that the institutional-investor defendants colluded to profit through coordinated output reductions at coal companies they partially owned, remains in its early stages, with discovery continuing through 2027. Already however, opponents of climate-risk mitigation have rushed to extract specious theories of antitrust harm from Judge Kernodle’s partial denial of the motion to dismiss (the BlackRock MTD decision).
Following procedural requirements, Judge Kernodle took as true plaintiffs’ allegations that the BlackRock defendants joined climate alliances and pursued related mitigation goals that “necessarily result in the reduction of coal output.” Judge Kernodle also found plausible plaintiffs’ allegations of antitrust harm to consumers, as reflected in rising prices during a period of decreased production by the relevant coal companies. Judge Kernodle did note that BlackRock may possess a valid defense to these allegations, stemming from long-term declines in coal consumption. But interests aligned with the BlackRock plaintiffs already have assembled a house-of-cards antitrust argument that any institutional investor factoring climate risk into its business decisions should face heightened scrutiny on routine portfolio acquisitions.
A neutral analysis of the BlackRock MTD decision does not justify imposing such legal burdens, which would hinder these investors’ capacity to compete against their climate-indifferent rivals. This post seeks to clarify: (1) why the BlackRock MTD decision remains far from proclaiming institutional investors’ every climate consideration a proven anticompetitive output reduction; and (2) why institutional investors’ “solely for investment” exemption from antitrust scrutiny still permits these investors to promote a wide range of climate-risk mitigation measures.
The Court Has Not Yet Taken Up “Weighty Economics Questions”
The BlackRock complaint contains multiple antitrust claims. The plaintiffs assert violations under Section 7 of the Clayton Act, claiming each defendant used its partial ownership of coal companies in a manner reasonably likely to reduce competition, to consumers’ detriment. Plaintiffs also assert violations under Section 1 of the Sherman Act, claiming defendants collectively agreed to coerce the coal companies’ implementation of a coordinated output reduction (reducing coal supply in order to intensify demand, raise prices, and boost profit margins). And Plaintiffs assert violations under state antitrust laws (not covered by this blog post).
Judge Kernodle’s MTD dismissal notes that the Texas complaint’s “first of its kind” allegation of a “horizontal agreement among investors to pressure competitors in another industry to reduce output” [italics in original] does not call for per se antitrust analysis (an approach which assumes the anticompetitive harms of a given activity, and only considers whether defendants engaged in that activity). Instead, the court will conduct an elaborate rule-of-reason balancing, to “divin[e] the procompetitive or anticompetitive effects” of these defendants’ business arrangements. Judge Kernodle makes clear that “weighty economics questions” remain to be resolved in later stages of litigation. Those questions will likely focus on defining an appropriate market to measure the competitive effects of defendants’ actions, determining whether plaintiffs have persuasively pinpointed how defendants’ actions harmed competition in these markets, and assessing defendants’ claims of procompetitive benefits.
Defendants Can Argue for a Broader Market Definition
To scrutinize antitrust defendants’ effects on competition, courts typically first define a particular market in which the purported harm occurred or might occur. Judge Kernodle’s MTD dismissal notes that defendants did not contest “at this stage” of litigation the plaintiffs’ proposed focus on the markets for South Powder River Basin coal, and thermal coal. Yet defendants may have good reason to contest these market definitions at subsequent stages. Consideration of a broader market (one encompassing a wide range of energy sources that satisfy the relevant consumers’ needs) could allow defendants to argue that modernization and diversification of product options in order to meet shifting economic conditions (such as mounting climate risk), have not, on balance, harmed energy consumers.
By extension, defendants might call into question the status of coal-company output decisions as a but-for cause of consumer harm, by pointing to across-the-board price increases for a diverse array of energy products. Alternately, if defendants could show that rising coal prices coincided with increased demand for substitutable energy products (such as renewable power, nuclear power, and/or natural gas), this also may weaken the plaintiffs’ claims of harm to consumers or to competition.
Defendants Can Dispute Anticompetitive Effects
The BlackRock plaintiffs will face additional challenges meeting their burden of persuasion as this case progresses. The defendants only need to poke holes in plaintiffs’ theory of harm. The defendants might start, for example, from plaintiffs’ argumentative reliance on: “different responses…exhibited by…publicly held companies…whose shares Defendants acquired and who cut their output during a period of rising prices…and…privately held companies, who raised their output.” This facile comparison between publicly and privately owned coal companies looks easily contestable.
The plaintiffs must convince the court that broader economic trends would not have prompted these same disparities between public and private coal companies’ output. But given the escalating societal concerns and conspicuous financial risks associated with an emissions-intensive energy source like coal, public companies’ greater susceptibility to reputational costs (alongside their added disclosure obligations) may incentivize such categorical differences in output. That certainly offers a simpler account than the elaborate conspiracy plaintiffs allege, in which institutional investors promised transformational clean-tech innovations, pushed for robust emissions reporting while faking their focus on climate mitigation, and cynically captured inflated profits by peddling dirty fuels.
The BlackRock plaintiffs also advance tenuous antitrust causation claims through their frequent conflations of defendants’ alleged coal-reduction, emissions-reduction, and net-zero pledges. This misapplies antitrust’s output-reduction concerns to restraints on firms’ negative externalities (greenhouse-gas byproducts), rather than on their supplying of economic goods (carbon-based energy sources). To date, Judge Kernodle has taken as true plaintiffs’ assertion that a pledge to reduce coal emissions “necessarily means cutting coal production because ‘there is no realistic path for a coal company to cut coal emissions other than by cutting production.’” Yet regardless of whether one doubts the fossil-fuel industry’s pledges of near-term clean-coal deployment, we consider it unlikely that a merits-stage court analysis would give the plaintiffs’ brusque, future-oriented pronouncement of “no realistic path” much factual weight in proving present market harms. We likewise find it ironic that Texas Attorney General Ken Paxton has signed off (both as a licensed attorney, and as an accountable public official) not only on this sweeping denial of clean-coal boosterism, but also on a recent letter celebrating President Trump’s “BEAUTIFUL, CLEAN COAL” [capitalization in original] agenda.
Nor do AG Paxton’s questionable claims stop there. In fact, the BlackRock complaint comes closest to demonstrating an agreement to reduce coal output (rather than to reduce greenhouse-gas emissions) by repeatedly misrepresenting plaintiffs’ own evidence on this topic. For but one example, the complaint brazenly cherry-picks from a Net Zero Asset Managers (NZAM) document, so that NZAM appears to call on its members (including each BlackRock defendant) to “immediately ceas[e] all financial or other support to coal companies…building new coal infrastructure.” Yet plaintiffs fail to disclose that the cited NZAM document does not require this particular approach. The approach is one of five climate-mitigation strategies that NZAM signatories are expected to choose from (other options include a “phase out” of thermal-coal investments on an unspecified timeline, or “restricting financing for unabated coal power generation, i.e. without carbon capture and storage”).
Judge Kernodle’s MTD decision, in turn, cites this NZAM quotation in multiple passages, at times reading it as an express NZAM requirement, rather than as a nonbinding option. Later stages of litigation will allow defendants to question whether membership in a climate alliance that permits an open-ended “phase out” of coal investments has evidentiary value in a lawsuit claiming real-world market effects between 2019 and 2022—and whether plaintiffs established that evidence in bad faith.
Former Congressmember (and ranking Republican on the House of Representatives’ Antitrust Subcommittee) Ken Buck has catalogued further ways in which “the facts dispute the allegations,” including: no relevant coal-company manager being removed by proxy vote during the complaint’s timeframe; certain defendants never voting against a single director; and purportedly colluding defendants consistently voting differently from each other.
Defendants Can Show Procompetitive Benefits
Should plaintiffs navigate these impediments to presenting a persuasive causal chain that culminates in anticompetitive effects, they still will need to address defendants’ procompetitive defenses. Multiple procompetitive rationales for corporate climate pledges present themselves, particularly for pledges to reduce emissions. To begin with, given regulatory uncertainty in the U.S. on coal emissions, as well as increasingly strict greenhouse-gas regimes in other advanced economies, reducing industry emissions (especially through lower emissions intensity) may facilitate continued coal production, under whatever constraints the industry finds itself facing. Moreover, the net-zero commitments in this case’s climate pledges need not even commit a signatory to reduced coal emissions (let alone reduced coal output), since by definition “net-zero” calculations balance GHG additions to, and removals from, the atmosphere (with possibilities for offsets).
Defendants also may argue that collective emissions pledges improve the quality of each investor firm’s offerings, and follow antitrust law on standard-setting by “encourag[ing] competition with cleaner, more innovative, or more transparent products.” Along related lines, the Department of Justice’s Antitrust Division and the Federal Trade Commission’s (the Antitrust Agencies) statement-of-interest filing on the BlackRock MTD sets the stage for a green-transition procompetitive defense, particularly in investment markets: “an institutional investor…could advocate in favor of the business in which it owns…stock to exit one market in favor of another, more profitable market [and] could even pressure the management of the firm to undertake such a transition [so long as this transition] would reduce output in the first market in service of achieving higher profits in another.”
This logic leaves ample room for institutional-investor defendants with substantial coal holdings to persuade the court that they did not seek to self-destruct by advocating a net-zero transition—but instead to increase profits (and improve their own investment products) by calling for energy-sector innovation that better fits evolving economic circumstances.
Applications of the Antitrust Agencies’ Statement of Interest Seem Overblown
Amid these daunting challenges still faced by the BlackRock plaintiffs, climate denialists already have doubled down on dubious antitrust rationales for stifling emissions-mitigation and disclosure initiatives.
The “woke alert” advocacy organization Consumers’ Research, for example, sent a September letter to the Antitrust Agencies, celebrating Judge Kernodle’s “vindicat[ion]” of the agencies’ BlackRock statement, which primarily argued that defendants overstated antitrust law’s exemption from Section 7 scrutiny, provided to stock acquisitions made “solely for investment.” Consumers’ Research highlights the Antitrust Agencies’ assertion that “an investment is not ‘solely for investment’ if an investor has an intent to use stock to influence significantly or control management of the target firm.”
Yet from this measured premise, Consumers’ Research mischaracterizes many reasonable business efforts to reduce climate risk as suspicious “mixed motive” practices demanding enhanced antitrust scrutiny. These suspect practices would include: an institutional investor’s public statement encouraging clarity in corporations’ greenhouse-gas reduction targets; an institutional investor’s voting of shares against incumbent directors who fail to pursue net-zero alignment; and even an investor’s mere vote for annual emissions disclosures like those increasingly required in most advanced economies.
This legal pivot from anticompetitive harms and managerial control (in the Antitrust Agencies’ statement), to a much broader array of climate-minded “business decisions,” would vastly restrict the shareholder rights of institutional investors and their clients, while harming competition in investment markets by capriciously targeting firms that engage in broad categories of risk analysis. By contrast, the Antitrust Agencies’ BlackRock statement offered multiple indications that “conferring with directors and management on best practices for…oversight processes,” or using “investment holdings and market status to influence or change…public reporting practices,” does not inevitably depart from Section 7 solely-for-investment standards. Rather, these actions confirm the “critical role in corporate governance matters” played by institutional investors. Subsequent rounds of the Texas v. BlackRock litigation hopefully will clarify that such investors need not sit on their hands as the world burns.
Cynthia Hanawalt is the Director of Climate and Business Law at the Sabin Center for Climate Change Law.
Andy Fitch is a Climate and Business Law Fellow at the Sabin Center for Climate Change Law at Columbia Law School.
