Adds detail on settlement terms, the context of Republicans' criticism, comments from State Street and comments from an analyst of Vanguard's funds
Vanguard's settlement may challenge BlackRock and State Street's stance
Kansas AG Kobach highlights Vanguard's passivity commitments
State Street calls lawsuit baseless
By Ross Kerber
Feb 26 (Reuters) - Vanguard Group will pay $29.5 million and bolster its passive investing approach in order to settle a suit by 13 Republican state attorneys general claiming the fund manager and rivals violated antitrust law through their climate activism.
The suit in U.S. District Court in the Eastern District of Texas has been closely watched as a test of how far Republicans from energy-producing states would push Wall Street firms they accused of overemphasizing environmental matters.
In a press release one of the plaintiffs, Kansas Attorney General Kris Kobach, said Vanguard "agreed to strict passivity commitments" prohibiting it from dictating the strategy of companies in which it invests or to push shareholder proposals related to environmental or social issues.
Vanguard said the deal reaffirms "the passive nature of our index funds."
The terms provide an easy off-ramp for Vanguard of Pennsylvania but may be more difficult for its Texas co-defendants BlackRock BLK.N of New York and State Street STT.N of Boston to accept.
The states sued the three firms in late 2024 over actions like their membership in industry trade groups focused on climate change, which the Republicans said served to reduce coal production and boost energy prices.
The firms had pushed back, saying among other things that a remedy the plaintiffs once suggested, having the funds divest from coal companies , would only harm the industry. All three remain major fossil-fuel industry shareholders, rejecting calls they boycott coal and oil stocks over climate concerns.
STAYING HANDS-OFF
Among the three, Vanguard has been clearest it seeks only a passive role in running companies held by its well-known products like the Vanguard 500 index fund VOO.P.
In 2024, for instance, Vanguard offered concessions to federal energy regulators similar to Thursday's agreement, like offering to not submit shareholder proposals.
"They're an index fund firm. They don't want to divest from stocks and not be able to track their indexes," said Vanguard investor newsletter editor Jeff DeMaso.
Vanguard has already adopted some settlement terms as policy, like the expansion of a program allowing its fund investors to shape how Vanguard proxy votes are cast. It and the others also supported fewer shareholder resolutions on matters like corporate emissions or workforce diversity.
The companies face less regulatory pressure in turn, including avoiding new regulations from the Trump administration and BlackRock's removal from a Texas investment blacklist.
A representative for Iowa Attorney General Brenna Bird, another plaintiff in the case, said via email that while Vanguard has made some adjustments, "those adjustments must continue and are binding" now. Bird's office hopes "more companies in the financial sector will follow suit."
In his press release Kobach said BlackRock and State Street "remain defiant."
A BlackRock spokesman declined to comment.
In an emailed statement, State Street said that "the lawsuit remains baseless and without merit. There was not, and is not, any collusion here aimed at coal prices. This settlement does not change that." A spokesperson also noted that like BlackRock and Vanguard, State Street runs a program allowing retail investors to influence proxy votes.
(Reporting by Ross Kerber. Additional reporting by Nate Raymond. Editing by Franklin Paul, Jane Merriman and Andrea Ricci )
((ross.kerber@thomsonreuters.com; (617) 412 0093;))