As favorable natural gas prices and investments in renewables continue to shrink the US coal sector, 11 states are accusing the world's largest asset managers of artificially depressing coal supplies.

In a lawsuit filed Nov. 27 in the US District Court for the Eastern District of Texas, the states allege that BlackRock Inc., Vanguard Group Inc. and State Street Corp. "formed a syndicate ... to use their collective holdings of publicly traded coal companies to induce industry-wide output reductions."

The three firms have the world's first-, second- and fourth-largest assets under management, respectively. While their coal portfolios are relatively small, the companies together own 34.2% of Arch Resources Inc. and 30.4% of Peabody Energy Corp. along with significant stakes in other coal producers, according to the lawsuit.

At the same time, the lawsuit said, the asset managers have participated in initiatives such as Climate Action 100+, a network of institutional investors that is expected to engage with their clients to reach net-zero greenhouse gas emissions by 2050. US members have fled the network as US political rhetoric targeting the initiative ramped up in recent years; in February, BlackRock scaled back its participation and State Street's Global Advisors subsidiary left the group. Vanguard, which has not taken part in Climate Action 100+, withdrew from the Net Zero Asset Managers Initiative in 2022.

Republican-led states and lawmakers have increasingly been raising an anti-trust argument in their criticism of the financial industry's investment choices. Texas, which led the 11-state lawsuit, was also an early critic of firms using environmental, social and governance criteria to assess business risks and opportunities.

BlackRock said the allegations are unfounded.

"The suggestion that BlackRock has invested money in companies with the goal of harming those companies is baseless and defies common sense," the company said in an emailed statement. "This lawsuit undermines Texas' pro-business reputation and discourages investments in the companies consumers rely on."

BlackRock has billions invested in the Texas energy industry and is "partnering with the state to attract investments into the Texas power grid and helping millions of Texans retire with dignity," the firm said.

Vanguard and State Street did not immediately respond to requests for comment.

Other states that have large fossil fuel production or coal-fired power fleets and joined the lawsuit include Indiana, Iowa, West Virginia and Wyoming.

Article amended at 4:35 p.m. ET on Dec. 3, 2024, to state that the 11 states are accusing the asset managers of colluding to artificially depress coal supplies.