By Dave Michaels

WASHINGTON -- U.S. antitrust enforcers for the first time are preparing to argue that large institutional investors who own shares in rival companies may violate antitrust laws if they use their influence to affect how those firms compete.

The Justice Department and Federal Trade Commission plan to make those views public Thursday by submitting a brief in a case filed last year by Texas Attorney General Ken Paxton and other Republicans against BlackRock, State Street, and Vanguard Group. The federal government's filing, known as a statement of interest, will say the asset managers' holdings of multiple companies in the coal industry -- known as common ownership -- could violate competition laws.

Common ownership is a burgeoning worry for antitrust enforcers and other competition hawks. It has grown more salient as fund managers such as BlackRock amassed trillions of dollars of assets from retirement savers and pension funds. Progressives have raised more alarms about common ownership, but Republicans have now adopted the cause as part of their attack on environmental, social and corporate-governance investing.

The Republican states' lawsuit alleges BlackRock, State Street and Vanguard undermined competition in the coal industry by advancing a climate-change agenda on the companies. The asset managers last year collectively owned between 8% and 34% of publicly traded coal companies' shares, the suit says. The coal companies produce nearly half of all U.S. coal, according to the Justice Department and FTC's filing.

The fund giants also were big players in trade groups that wanted fossil-fuel companies to cut their emissions over time. That led to lower coal production -- which led to higher prices, according to the states' lawsuit.

The Justice Department and FTC now say that is a credible legal theory for antitrust liability.

The asset managers have said that common ownership doesn't violate antitrust laws because their funds invest passively, buying and selling shares according to indexes. When BlackRock and others acted on their climate-change concerns by voting against coal-company directors or talking with management about climate risks, those were "incidental" activities that don't create an antitrust conspiracy, they say in court filings.

The Justice Department and FTC say they aren't calling into question all index investing or cases of common ownership. But investors may cross the line when they use their influence over multiple companies to undermine competition, as Texas and the other plaintiffs allege, they say.

The court brief also reflects President Trump's support for coal, whose use in U.S. electricity generation has been declining for years. Trump last month signed executive orders that aim to boost coal mining, leasing and exports, as well as the revival of coal-fired power generation.

House Republicans have previously targeted BlackRock's involvement in trade associations that pressed companies to reduce greenhouse-gas emissions, arguing the groups amount to a cartel that colluded to impose green-energy requirements on fossil fuel producers.

The House Judiciary Committee in December asked BlackRock, State Street and other participants in the Net Zero Asset Managers Initiative to hand over records related to their involvement. Vanguard pulled out of NZAM in 2022, while BlackRock withdrew from the initiative earlier this year.

BlackRock has been trying to address worries about common ownership for years, including by questioning academic research that raised questions about its risks. The academic papers have pointed out that concentrated holdings of public companies by a few huge asset managers is a relatively new phenomenon. Research by three economists published in The Journal of Finance in 2018 found that common ownership likely caused higher airline ticket prices.

The issue fueled more antitrust concern as BlackRock, Vanguard and State Street became more assertive players in corporate governance. BlackRock became the giant of environmental, social and corporate-governance investing and its founder, Larry Fink, became a lighting rod for urging companies to prepare for a scaleback of fossil fuels.

BlackRock, State Street and Vanguard asked a Texas federal court this year to dismiss the lawsuit over their common ownership and ESG investing. The asset managers said the states put forward "empty conspiracy claims" that don't include any evidence that they attempted to influence coal producers' output or prices.

BlackRock and the other defendants say the coal producers' total output actually rose from 2020 to 2022, contradicting what Texas and the other states claim. BlackRock and State Street also sometimes voted against board members whose companies cut production over that period.

Write to Dave Michaels at dave.michaels@wsj.com

(END) Dow Jones Newswires

May 22, 2025 11:10 ET (15:10 GMT)

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