Vanguard quits climate alliance in blow to net zero project

Vanguard is pulling out of the main financial alliance on tackling climate change at a time when Republicans in the US have stepped up their attacks on financial institutions that they say are hostile to fossil fuels.

With $7.1tn under management and more than 30mn customers as of October 31, Vanguard is the second-largest global money manager after BlackRock. The group said on Wednesday that it was resigning from 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 the alliance’s full-throated commitment to fighting climate change had resulted “in confusion about the views of individual investment firms”.

“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 Pennsylvania-based company said in a statement.

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

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

“It is unfortunate that political pressure is impacting this crucial economic imperative and attempting to block companies from effectively managing risks,” 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 asset managers belong to NZAM, including BlackRock, State Street, JPMorgan 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 investing factors and net zero products to investors who want them. Vanguard will also still 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 authorisation to buy shares in US utilities. They cited its NZAM membership as evidence that it was trying to influence corporate policy rather than being a passive investor.

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

Republican state attorneys-general have also demanded that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo turn over information about their involvement in the banking arm of Gfanz.

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 the asset owner section of Gfanz, while investment consultancy Meketa 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 were concerned that they could be sued over increasingly stringent decarbonisation commitments.

Gfanz responded by weakening its alignment with UN climate goals that called for members to roughly halve the emissions they are responsible for by 2030.