2 July 2025

What can Australian investors take away from ESG cartel lawsuit against “big three” asset managers?

Sar Katdare, Morgan Blaschke-Broad, Sophie Stewart

In May, the US Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ) filed in support of an antitrust case against three of the largest global asset managers, Blackrock, State Street and Vanguard. The lawsuit alleges that the defendants formed an “investment cartel” by leveraging their substantial shareholdings in competing coal companies to suppress coal production and drive up prices under the guise of climate activism. The FTC and DOJ have argued that large institutional investors who hold shares in competing companies risk running afoul of antitrust laws if they use their influence to shape how those businesses compete, irrespective of any “social justifications”. 

The FTC and DOJ urged the judge to reject the asset managers’ argument that the conduct falls under an exemption for passive investors who purchase stock “solely for investment” and do not attempt to use the stock to harm competition. 

The defendants claim that the lawsuit defies economic reality and ignores that the coal market has been declining for decades. They deny having ever communicated with each other or having voted against the same coal company directors. 

The asset managers are awaiting the outcome of the hearing to dismiss the case. If the lawsuit proceeds, it may have major implications for how the firms manage their combined US$27 trillion in managed funds. 

ESG justifications

The lawsuit is part of a wider political and legal conflict over ESG investing, with conservative critics arguing that firms are overstepping by leveraging their influence to shape corporate practices on environmental and social issues. The entry of both the FTC and DOJ raises the stakes for this case, which may set a precedent on the extent to which asset managers can align portfolios with ESG objectives without violating competition laws.

The US’ tightened stance on ESG investing is seemingly inconsistent with the many jurisdictions around the world that are expanding their environmental exemptions to cartel laws. 

In Australia, the ACCC has demonstrated support for sustainability-related collaborations, recognising that there may be certain instances where businesses should work together to pursue environmental initiatives. In December 2024 the ACCC published a guide on sustainability collaborations to highlight when such collaborations are unlikely to breach competition law, as well as the circumstances in which cartel conduct exemptions may be available. 

Adopting a similar position, both the European Commission in June 2023 and the United Kingdom’s Competition and Markets Authority in October 2023 released guidance to help overcome any competition law obstacles to sustainability collaborations. Each jurisdiction’s guidelines aim to provide businesses with confidence to rely on existing exemptions to enter into sustainability-based agreements which may otherwise breach competition law. 

Implications
  • Asset managers should be vigilant about the role they play and potential competition liability arising from internal management conduct aimed at achieving ESG goals.
  • Asset managers should be cautious about competition constraints while pursuing collective ESG-based goals across competing assets and be aware of the attitude of competition regulators in each relevant jurisdiction.
  • Businesses in Australia can apply for an exemption for certain anti-competitive conduct including in relation to so called “green cartels”. Businesses still need to be careful to ensure that they rely on existing exemptions or otherwise pursue authorisation through the ACCC.
  • Businesses should seek advice prior to pursuing any sustainability collaboration cartel exemptions.