The day before Thanksgiving, eleven Republican state attorneys-general (representing Texas, Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia and Wyoming) filed a lawsuit against three prominent asset managers, alleging that these companies colluded to reduce coal output through their holdings in nine coal companies, thus reducing the supply of electricity and raising electricity prices for consumers in the United States. Specifically, the complaint alleges that “Defendants have leveraged their holdings and voting of shares to facilitate an output reduction scheme, which has artificially constrained the supply of coal, significantly diminished competition in the markets for coal, increased energy prices for American consumers, and produced cartel-level profits for Defendants.” Notably, the state attorneys-general state that the asset managers “have publicly defended their anticompetitive scheme with appeals to environmental stewardship,” identifying environmental principles as a causal factor for the alleged illegal behavior.

In effect, the lawsuit alleges that these three asset managers were able to engage in a scheme through their market power--due to their extensive holdings of stock in the relevant coal companies--to reduce coal output, ostensibly in response to environmental concerns. Yet, according to the complaint, this reduction in coal output increased both the price of electricity and the profits obtained by the coal companies (and their owners, the asset managers). This is a bit unusual as an antitrust theory, as it relies upon collusive efforts by minority shareholders to reduce output across an entire industry in the pursuit of additional profits. (In contrast, a classic antitrust theory--which had been suggested as a potential anti-ESG lawsuit--would focus on an explicit agreement among competitors to accept or comply with a certain environmental standard that would have the effect of discouraging competition.) Still, even if the theory advanced is a bit unusual, it nonetheless focuses on a key antitrust principle--that an agreement to reduce output is anti-competitive.

This lawsuit represents the first, but likely not the last, effort to use the courts to enforce antitrust law against companies and industries that are attempting a coordinated response to the pressures of climate change.  For the past two years, Republican politicians have identified antitrust law as a potential weapon to use when combatting ESG investing and activities. These efforts have been at both federal and state government. In effect, this lawsuit represents the fruition of these earlier plans. Of course, this focus on antitrust law does not mean that the ensuing actions will result in successful prosecutions.