Vanguard spared ESG grilling in Texas after ditching green alliance

Texas legislators have excused Vanguard from being grilled on its investment practices at a hearing on environmental, social and governmental investment factors, a week after the asset management giant quit the main global financial alliance on tackling climate change.

The Texas Senate Committee on State Affairs on Thursday planned to question executives from Vanguard, BlackRock and State Street over their ESG investment policies. Republican leaders in the state — the largest US oil and natural gas producer — have accused some banks and asset managers of hostility to fossil fuels.

On Wednesday the committee said that Vanguard no longer needed to attend the hearing in the small city of Marshall. It cited the $7.1tn asset manager’s decision last week to abandon the Net Zero Asset Managers initiative, whose members have committed to achieving net zero carbon emissions by 2050.

“The committee is encouraged by your withdrawal . . . and by your stated desire to ‘make clear that Vanguard speaks independently on matters of importance to [its] investors’,” committee chair Bryan Hughes wrote in a letter to Vanguard.

Hughes, a Republican, followed up on Twitter with a message that said, “We look forward to discussing the harmful effects that ESG policies have on Texas retirees with BlackRock and State Street.”

The hearing is expected to feature full-throated criticism of asset managers’ use of ESG factors to guide investments. It comes after the Texas state comptroller earlier this year cited NZAM membership as he drew up a list of organisations he accused of “boycotting” fossil fuels.

Republican state treasurers around the US have pledged to pull more than $3bn from BlackRock funds over its efforts to address climate change, and the North Carolina treasurer called for the resignation of Larry Fink from his role as chief executive.

Vanguard is the largest financial institution to date to leave NZAM and the broader Glasgow Financial Alliance for Net Zero chaired by former Bank of England governor Mark Carney.

The world’s second-largest asset manager is not entirely off the hook with Texas. Hughes’s letter warned that the committee “will continue to evaluate your ESG practices and your relationship to Texas pension systems”.

Vanguard said in a statement that it remained “resolute in our duty to steward the hard-earned savings of our more than 30mn individual investors around the globe. We remain focused on maximising our investors long-term returns and giving them the best chance for investment success.”

Thursday’s hearing is due to hear testimony from Dalia Blass, BlackRock’s head of external affairs; Lori Heinel, State Street’s global chief investment officer; and Lorraine Kelly, the global head of investment stewardship at the proxy advisory firm Institutional Shareholder Services.

BlackRock said in a statement: “We look forward to continuing our engagement with the committee to share BlackRock’s work on behalf of millions of investors.”