Vanguard jumps ship at net-zero initiative

The company, like other large asset managers, has faced pressure from conservatives over ESG stances



Emile Hallez

One of the world’s largest asset managers, Vanguard, is withdrawing from membership in the Net Zero Asset Managers initiative, or NZAM, the firm announced today.

That development follows a year of pressure from conservative groups and prominent Republicans on financial services firms to disavow ESG-related objectives. Notably, Vanguard’s decision comes a day after Senate Banking Committee Republicans issued a report criticizing the “big three” asset managers — BlackRock, State Street and Vanguard.

In a statement on the company’s site, Vanguard characterized its withdrawal from NZAM as a way 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 favored 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.”

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.

NZAM, which started in 2020, last month announced that 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.

Earlier this year, ESG Clarity analyzed 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.

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.”

NZAM “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,” Ceres Investor Network vice president Kirsten Snow said.

“While Net Zero Asset Managers recognize that 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 decarbonize, 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.”

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