Vanguard leaves the climate alliance in the blow-to-net-zero project

Vanguard is withdrawing from the main financial alliance fighting climate change at a time when US Republicans have ramped up their attacks on financial institutions they say are hostile to fossil fuels.

With $7.1 trillion in assets under management and more than 30 million clients as of October 31, Vanguard is the second-largest global wealth manager after BlackRock. The group announced Wednesday that it is exiting the Net Zero Asset Managers initiative, whose members have committed to achieving net-zero carbon emissions by 2050.

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

“We have decided to withdraw from NZAM so that we can provide the clarity our investors want about the role of index funds and how we think about material risks, including climate-related risks – and to clarify that Vanguard is involved in matters independently speaks to our investors,” the Pennsylvania-based company said in a statement.

Founded in December 2020, NZAM had 291 members managing $66 trillion in assets as of November. Last year NZAM joined a climate finance umbrella group, the Glasgow Financial Alliance for Net Zero (Gfanz), which was formed last year under Mark Carney, former Bank of England Governor. Vanguard will leave both groups.

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

“It is unfortunate that political pressure is influencing this crucial 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 founding partner of NZAM.

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

Vanguard said the move had been in the works for several months. It will continue to offer products that leverage environmental, social and governance investment drivers, as well as net-zero products, to investors who so desire. Vanguard will continue to 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 its NZAM membership as evidence that it was trying to influence company policy rather than being a passive investor.

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 Several Republican states have withdrawn cash management and other investment accounts from BlackRock, which, under founder Larry Fink, has been open about the need to take climate change into account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

Republican attorneys general have also requested that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo release information about their stakes in Gfanz’s banking division.

Environmental groups accused Vanguard of duplicity after its announcement.

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

At least two pension funds, Cbus Super and Bundespensionskasse, have left Gfanz’s asset owner division, while investment consultancy Meketa has left another division. Several Wall Street banks, including JPMorgan Chase, Morgan Stanley and Bank of America, threatened to pull out over the summer over fears of being sued over increasingly stringent decarbonization commitments.

Gfanz responded by weakening its alignment with the UN climate targets, which called on members to roughly halve the emissions they are responsible for by 2030.

climate capital

Where climate change meets the economy, markets and politics. Discover the coverage of the FT here.

Curious about the FT’s environmental sustainability commitments? Learn more about our science-based goals here

Leave a Reply

Your email address will not be published. Required fields are marked *