State AG Attacks on Climate Alliances Still Lack Coherent Antitrust Theories – Climate Law Blog

A now-familiar playbook for climate-denying state attorneys general is to launch burdensome investigations of climate-minded corporate enterprises based on inchoate antitrust claims (often conspicuously lacking a profit motive for the alleged antitrust violations). These enforcement tactics crystallize two challenges for corporate climate initiatives seeking to steer clear of antitrust liability. First: in order to prevent a climate-laggard firm from undercutting its rivals by selling cheaper and dirtier products, emissions-reducing economic transformations may require transparent industry-wide participation. These efforts can appear structurally similar to a classic antitrust hub-and-spoke conspiracy, where a central communications entity serves as conduit for the unlawful sharing of sensitive business information. The apparent antitrust concerns give rise to a second challenge: state enforcers have successfully exploited this surface resemblance to anticompetitive cartels to extract concessions from targeted climate alliances, without needing to establish a convincing record of real-world antitrust harm.

Often, enforcers simply announce having launched an investigation, adopting loose rhetoric that raises the public specter of “collusion” while conflating fraud, consumer-protection, and antitrust concerns. The merits of any antitrust allegation remain opaque, but the burdensome ramifications for a wide range of parties chill participation in climate alliances, even though many such enforcement claims would never prevail court. At present, for example, state investigations of ESG-promoting proxy advisors, and of emissions-disclosure service providers, look less likely to turn up an antitrust violation than to stifle corporate innovations on climate.

Neither Parallel Conduct nor Market Share Alone Establishes an Antitrust Claim

Earlier this year, Florida Attorney General James Uthmeier launched an investigation into whether Glass Lewis and Institutional Shareholder Services (ISS) have engaged in “unlawful collusion” under Florida antitrust and consumer-protection laws. The Attorney General justified the investigation based on the firms’ significant combined market share (likely more than 90% of proxy-advisory services), their active consideration of ESG and related sustainability factors, and their purported misrepresentation of pursuing a “sound, apolitical investment strategy.” Yet Attorney General Uthmeier has failed to indicate where an antitrust violation might have occurred, even if these firms do possess the combined capacity “to negatively impact corporations’ ratings.” From the perspective of antitrust law, the reference point to evaluate anticompetitive conduct would be the market for proxy-advisor services, not the market for emissions-intensive enterprises supposedly harmed by Glass Lewis and ISS proxy recommendations. These proxy advisors can freely find fault with a company, and no antitrust conspiracy arises just because these advisors are aligned in their negative assessment.

Under Section 1 of the Sherman Act, the principal federal law for enforcement against antitrust conspiracies, showing parallel conduct by horizontal competitors (for instance, two proxy advisors both supporting climate-risk disclosures) does not by itself establish an unlawful agreement. Unlawful collusion between such competitors typically would enable price fixing (here, specifically within the field of proxy-advisory services), an output restriction (again, on proxy-advisory services, presumably allowing these firms to profit from intensifying demand), or the boycotting of a third party (most often a rival or potential rival). Absent these outcomes, it becomes difficult to articulate an antitrust theory whereby Glass Lewis and ISS benefitted by stifling market competition. If anything, their parallel conduct through pro-ESG proxy recommendations creates space for an anti-ESG proxy advisor to tap whatever consumer demand may exist for such services.

Section 2 of the Sherman Act, the principal federal law for enforcement against antitrust monopolies, covers a broader range of anticompetitive behavior. But again, Section 2 does not create antitrust liability simply for dominant market share. Even if only one of these firms possessed 90% market share, no antitrust violation would arise without exclusionary conduct (such as attaining or maintaining this monopoly by impeding rivals from entering the market).

Attorney General Uthmeier may personally disagree with how “ESG goals…handcuff Florida businesses.” He may pursue a consumer-protection claim if “the [return on investment] numbers tell a different story” than what Glass Lewis and ISS advertise, or he may posit a fiduciary violation by asset managers who rely on dubious proxy recommendations. But the Attorney General’s claims of “unlawful collusion” and “very real anti-competitive” effects appear unlikely to prevail. Indeed, the claims more closely resemble a violation themselves, of unconstitutional viewpoint discrimination, as Glass Lewis and ISS successfully argued in response to a recent Texas law.

Chilling the “Victim”

Attorney General Uthmeier offered a slightly more nuanced theory of harm in July when he announced the issuance of subpoenas to CDP (a nonprofit climate disclosure platform) and the Science Based Targets initiative (SBTi) (a nonprofit collaboration between partners, including CDP and the United Nations’ Global Compact, that advises firms on emission targets and compliance). The announcement noted that certain SBTi operations recommend using CDP as a disclosure platform, in “what appears to be a profit-driven feedback loop.” Again, Attorney General Uthmeier left ambiguous whether the targeted parties “violated state consumer protection or antitrust laws,” but did allege that they “coerc[ed] companies into disclosing proprietary data and paying for access under the guise of environmental transparency.”

Here too, however, AG Uthmeier’s antitrust analysis withers under scrutiny. His most clearly specified query asks “[w]hether CDP’s efforts to pressure or punish companies that don’t participate result in anticompetitive effects.” But for antitrust purposes, legal claims establishing CDP’s coercive influence over firms would require CDP to possess sufficient market power in a clearly defined market. CDP presently boasts to represent “more than a quarter of all institutional assets,” and recent reporting indicates that “the vast majority of those committed to using the net-zero framework come from outside the U.S.” If more than 75% of the relevant U.S. market does not feel the need to disclose through CDP’s platform, a court is unlikely to find strong grounds for a firm to feel “pressured” into participating, at least not due to CDP’s coercive market power.

Attorney General Uthmeier’s second antitrust query asks “[w]hether coordination between CDP, financial institutions, and investment services constitutes unlawful market manipulation,” pointing vaguely to possibilities of an unlawful vertical agreement (among enterprises at different levels of a distribution chain) under Section 1 of the Sherman Act. However, unlike horizontal agreements among direct competitors, which eliminate independent centers of decision-making from a given market, vertical agreements receive significant leeway in antitrust enforcement. Courts routinely recognize the pro-competitive efficiencies generated by such agreements, particularly in nascent industries (such as climate disclosure reporting services). Fluid innovation makes coercive economic power more difficult for firms to obtain or maintain in these circumstances anyway, leaving judges wary to impose their own market corrections, which could prove ineffective and stifle further innovations.

Questions of whether CDP or SBTi deploy pressure tactics or pay-to-play schemes in violation of Florida’s consumer-protection law are outside the scope of this post. But from an antitrust perspective, the lines of analysis AG Uthmeier has sketched appear insufficient to establish any wrongdoing.

Still, from an anti-ESG political perspective, announcing an investigation brings obvious benefits. Intimations that CDP or SBTi pressure or punish firms portray these affiliated nonprofit climate-mitigation service providers as (however improbably) bullying villains. Piggyback antitrust claims of “coordination between CDP, financial institutions, and investment services” potentially implicate the supposed victims. Corporations with a business relationship to CDP or SBTi are left to wonder where they stand, and whether ongoing association with these entities is worthwhile.

This two-pronged approach to demonizing climate alliances likewise manifests through AG Uthmeier’s self-contradictory characterization of the targeted parties. His investigation announcement depicts CDP and SBTi as “[r]adical climate activists [who] have hijacked corporate governance and weaponized it against the free market”—but also as idle scammers cynically manipulating the public’s climate concerns, while offering little more than a “profit-driven feedback loop.” Taking a head-in-the-sand approach to Florida’s pressing climate crisis, both its extreme weather and economic ramifications, is bad enough. But AG Uthmeier’s crusade against climate-minded nonprofit organizations only further corrodes possibilities for constructive collective action, all at his constituents’ expense.

Enforcement through Intimidation Rather than Coherent Antitrust Analysis

In August, Iowa Attorney General Brenna Bird and 22 Republican state attorneys general (AG Uthmeier included) doubled down on those bombastic tactics, sending a letter to SBTi that alludes to previous enforcement campaigns which shut down net-zero initiatives, and that requests wide-ranging access to internal SBTi documents and client communications. But AG Bird’s letter does little to clarify a coherent antitrust claim against SBTi.

At times the letter appears to frame net-zero commitments as self-evident output restrictions, revealing a basic misunderstanding of antitrust law by suggesting the restriction analysis applies to reductions in firms’ negative externalities (here, their carbon emissions), rather than to reductions in their supply of goods and services. At other times, AG Bird’s letter suggests that SBTi lacks the power to bring about any meaningful net-zero trajectory anyway, arguing that its “unachievable climate agenda” has been impeded by President Trump’s 2024 election, other countries’ failure to get “on the right track,” and recent state “anti-ESG laws.” Further muddling the antitrust analysis, AG Bird’s emphasis on “horizontal agreement[s] to restrict output” diverges from her letter’s apparent focus on “SBTi and the financial institutions that commit to its Standards”—distinct categories of market participants who are not horizontal competitors.

In its more lucid passages, AG Bird’s letter posits a group boycott. SBTi clients (whom AG Bird describes as SBTi “members,” presumably to implicate these entities by turn of phrase) purportedly have engaged in an unlawful boycott by pledging to fulfill “clear steps and timelines for ceasing new financial activities and insurance services to the fossil fuel industry.”  According to the FTC, group boycotts typically stem from competitors agreeing to withhold goods or services at prevailing costs in order to fix prices, disadvantage an existing competitor, or prevent a potential rival from entering a market. AG Bird’s focus on the nonprofit charity SBTi coaxing financial institutions to refrain from funding fossil fuel enterprises has, at best, a tenuous connection to any such antitrust theory of harm. And the letter’s contradictory claims are difficult to reconcile. It is hard to grasp, for example, how SBTi standards could impose “the immediate cessation of financial support to…fossil fuel production capacity,” yet simultaneously allow colluding financial institutions to “squeeze” the fossil fuel industry for excess profits.

Even the FTC’s catchall formulation that “boycotts for other reasons may be illegal if the boycott restricts competition and lacks a business justification” offers AG Bird little room for a viable antitrust claim. Banks and insurers can offer a strong business justification for limiting their financial risk exposure, and for their own portfolio-protecting efforts to mitigate climate change. A judge considering such a defense—while weighing AG Bird’s superficial group-boycott analogy against decades of antitrust law favoring market realities over formalist distinctions, and alarming prospects for stranded fossil fuel assets and infrastructure—would find it difficult to conclude that no conceivable business justification exists.

Given this lack of a coherent antitrust case, it should come as no surprise that AG Bird instead relies on menacing references to “an exodus of members” from previously targeted net-zero initiatives, and a burdensome-by-design documentation request. Troublingly, AG Bird’s letter received the legal imprimatur of 22 additional attorneys general, wasting taxpayer resources and potentially committing ethics violations on legally questionable efforts to stymie corporate climate mitigation.

The weakness of antitrust claims against good-faith climate initiatives has been clear for some time. AG Bird may cite the longstanding principle that good intentions “are irrelevant” to antitrust law. But, while climate-mitigating intentions do not exempt corporate alliances from antitrust scrutiny, neither do they make these alliances guilty until proven innocent. State AG enforcers continue to struggle to provide a persuasive theory of antitrust harm. In the meantime, targeted alliances should push back with robust procompetitive rationales for their reasonable efforts to address climate risk.

Cynthia Hanawalt is the Director of Climate and Business Law at the Sabin Center for Climate Change Law.

Andy Fitch is a Climate and Business Law Fellow at the Sabin Center for Climate Change Law at Columbia Law School.