Vanguard is pulling out of the top financial alliance on fighting climate change at a time when US Republicans have stepped up their attacks on financial institutions they say are hostile to fossil fuels.
With $7.1 billion under management and over 30 million clients as of October 31, Avant-garde is the world’s second largest fund manager after BlackRock. The group announced Wednesday that it is resigning from the Net Zero Asset Managers initiative, whose members have pledged to achieve net zero carbon emissions by 2050.
Vanguard, which primarily manages passive funds that track stock indices, said the alliance’s wholehearted commitment to the fight climate change resulted in “confusion as to the views of individual investment firms”.
“We have decided to withdraw from NZAM so that we can provide our investors with the desired clarity on the role of index funds and how we think about material risks, including climate-related risks – and to clarify that Vanguard speaks independently on matters of importance to our investors,” the Pennsylvania-based company said in a statement.
NZAM was founded in December 2020 and had 291 members managing $66 billion in assets as of November. Last year, NZAM joined an umbrella climate finance organisation, the Glasgow Financial Alliance for Net Zero (Gfanz) when it launched last year under Marc Carney, former Governor of the Bank of England. Vanguard will leave both groups.
In a statement, NZAM said Vanguard’s decision was regrettable.
“It is unfortunate that political pressure is impacting this critical economic imperative and trying to prevent companies from effectively managing risk,” said Kirsten Snow Spalding of Ceres, a coalition of investors and environmental groups and also a partner. founder of NZAM.
Most of the world’s largest asset managers are owned by NZAM, including BlackRock, State Street, JPMorgan Asset Management and Legal & General. Notable holdouts include Fidelity Investments and Pimco, both based in the United States.
Vanguard said the move had been in the works for several months. It will continue to offer products that use environmental, social and governance investments net zero factors and products to investors who so wish. Vanguard will also ask the companies it invests in how they plan to address climate risks.
Last month, a group of Republican attorneys general asked the Federal Energy Regulatory Commission not to renew Vanguard’s authorization to buy shares in US utilities. They cited his membership in NZAM as evidence that he was trying to influence company policy rather than being a passive investor.
The move is part of a broader Republican attack on ESG investing. Several Republican states have removed cash management and other investment accounts from black rock, which under founder Larry Fink has been outspoken about the need to consider climate change in investing. Texas Comptroller Glenn Hegar said NZAM membership was one of the factors he used to compile a listing organizations he accuses of “boycotting” fossil fuels.
Republican state attorneys general also demanded that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo hand over information about their involvement in Gfanz’s banking arm.
Environmental groups accused Vanguard of duplicity after its announcement.
“Vanguard has never taken climate risk mitigation seriously,” said Jessye Waxman, manager of the Sierra Club’s fossil-free fundraising campaign. For Vanguard, “joining NZAM was just an exercise in greenwashing.”
At least two pension funds, Cbus Super and Bundespensionskasse, left the asset owners section of Gfanz, while investment consultancy Meketa left another section. Several Wall Street banks including JPMorgan Chase, Morgan Stanley and Bank of America threatened to withdraw over the summer because they feared being sued for increasingly stringent decarbonization commitments.
Gfanz replied with weakening its alignment with the UN’s climate goals which called on members to roughly halve the emissions for which they are responsible by 2030.