Vanguard quits climate alliance in blow to net zero project

Vanguard’s exit from the main financial coalition to tackle climate change comes as Republicans in the US have stepped up their attacks on financial institutions they say are hostile to fossil fuels.

With $7.1tn under management and over 30 million clients as of 31 October, Vanguard is the second largest global wealth manager behind BlackRock. The group said Wednesday it is resigning from the Net Zero Asset Managers initiative, whose members have committed to achieving net zero carbon emissions by 2050.

Vanguard, which primarily manages passive funds that track market indices, said the coalition’s full commitment to fighting climate change has resulted in “confusion about the views of individual investment firms”.

“We have decided to withdraw from the NZAM in order to provide clarity to our investors about the role of index funds and how we approach physical risks, including climate-related risks – and to clarify how Vanguard issues speaks freely on the importance to our investors,” the Pennsylvania-based company said in a statement.

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NZAM was established in December 2020 and as of November has 291 members managing $66tn in assets. Last year NZAM joined the Glasgow Financial Alliance for Net Zero (Gfanz), an umbrella climate finance organisation, at its launch last year under former Bank of England governor Mark Carney. The pawn will move out of both groups.

In a statement, NZAM said Vanguard’s decision was regrettable.

“It is unfortunate that political pressure is affecting this important economic imperative and attempting to prevent companies from effectively managing the risks,” said Kirsten Snow Spalding of Ceres, a coalition of investors and environmental groups. And is also a founding partner of NZAM.

Most of the largest global asset managers belong to NZAM, including BlackRock, State Street, JP Morgan Asset Management and Legal & General. Notable holdouts include Fidelity Investments and Pimco, both based in the US.

Vanguard said the move had been in the works for several months. It will continue to offer products that use environmental, social and governance investment factors and net zero products to investors who want them. Vanguard will still be asking the companies it invests in how they plan to address climate risks.

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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. He cited its NZAM membership as evidence that it was trying to influence corporate policy rather than being a passive investor.

The move is part of a larger assault on ESG investing by Republicans. Several Republican states have pulled cash management and other investment accounts from BlackRock, which under founder Larry Fink has been vocal about the need to take climate change into account in investing. Texas Comptroller Glenn Hager said that NZAM membership was one of the factors he used to compile a list of organizations he accused of “boycotting” fossil fuels.

The Republican state attorney-general has also demanded that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo provide information about their involvement in Gfanz’s banking arm.

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Following its announcement, environmental groups accused Mohra of duplicity.

“Vanguard has never been serious about reducing climate risk,” said Jesse Waxman, an official with the Sierra Club’s fossil-free finance campaign. For Vanguard, “joining the NZAM was just an exercise in greenwashing”.

At least two pension funds, Cbus Super and Bundespensionskasse, have left Gfanz’s asset owner section, while investment consultancy Maketa has left another section. Several Wall Street banks, including JPMorgan Chase, Morgan Stanley and Bank of America, threatened to pull out over the summer because they worried they could be sued for making too strict decarbonization commitments.

Gfanz responded by undermining its alignment with the United Nations’ climate goals, which call on members to cut emissions by nearly half by 2030.

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