One of the world’s largest asset managers, Vanguard, is withdrawing its membership from the Net Zero Asset Managers initiative (NZAM), the firm has announced.
In a statement on the company’s website, Vanguard said its exit from NZAM was to clarify its role as an index fund provider.
“Vanguard joined the Net Zero Asset Managers initiative in 2021. Such industry initiatives can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms,” the firm stated.
“That has been the case in this instance, particularly regarding the applicability of net-zero approaches to the broadly diversified index funds favoured by many Vanguard investors.
“Therefore, after a considerable period of review, we have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors.”
The development follows a year of pressure in the US from conservative groups and prominent Republicans on financial services firms to abandon ESG-related objectives. For example, Florida and Texas have introduced legislation or rules to prevent state funds from investing in companies with an ESG approach. Notably, Vanguard’s decision comes a day after Senate Banking Committee Republicans issued a report criticising the “big three” asset managers — BlackRock, State Street and Vanguard.
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Despite its membership in NZAM, Vanguard has held that it does not have objectives beyond returns, though it has also indicated that climate change could affect financial performance.
In an interview with ESG Clarity in April, John Galloway (pictured), global head of investment stewardship, said: “We have no agenda beyond shareholder return. That frustrates those who say, ‘How can you say that? Climate change today is an essential crisis, and everyone should be doing everything they can.’ There’s a frustration with lack of governmental action, particularly in the States, and therefore a desire for other entities to step in and do something. We don’t believe that’s the role we can or should play. We are not a solution to a societal challenge that needs governmental action.”
Fiduciary duty
NZAM, which started in 2020, last month announced its membership had grown to 291 firms, with 86 asset managers having disclosed initial net-zero targets. The most recent firms to join were Northern Trust and AllianceBernstein.
One of the founding groups of NZAM, Ceres, noted in a statement that “it is unfortunate that political pressure is impacting this crucial economic imperative and attempting to block companies from effectively managing risks — a crucial part of their fiduciary duty”.
Speaking on behalf of NZAM, Ceres Investor Network vice-president Kirsten Snow said it “regrets that Vanguard has taken the action of withdrawing from the initiative”.
“We wish them well in their journey to integrate climate change and other sustainability risks into all that they do, and we look forward to our continued work with them,” she added.
“While Net Zero Asset Managers recognise there are challenges with measuring the alignment of passive portfolios with a 1.5 temperature rise limit and moving the companies in the index funds to rapidly decarbonise, these challenges can only be met by strong commitments to transitioning to the zero emissions economy by investors, companies and policymakers,” Snow said.
In its statement, Vanguard said its withdrawal from NZAM would not affect how it manages money and engages with portfolio companies.
“We will continue to interact with companies held by Vanguard funds to understand how they address material risks, including climate risk, in the interests of long-term investors,” the firm stated. “And we will continue to publicly report on our efforts with respect to climate risk, grounded in our deep commitment to our investors and their financial well-being.”
Earlier this year, ESG Clarity analysed data on net-zero commitments by member firms, finding that most had targets that did not appear connected to real-world impacts on climate change.
A version of this article first appeared on ESG Clarity US.
