Top investors including Vanguard, face pressure from Republican US politicians over use of ESG factors in investments.
Vanguard Group Inc is pulling out of a leading investment-industry initiative on tackling climate change, the world’s biggest mutual fund manager has said, explaining it wants to demonstrate independence and clarify its views for investors.
Top investors, including Pennsylvania-based Vanguard, face mounting pressure from United States Republican politicians over their use of environmental, social and governance (ESG) factors in picking and managing securities.
One focus of criticism has been the effort known as the Net Zero Asset Managers (NZAM) initiative, launched in late 2020 to encourage fund firms to reach net zero emission targets by 2050 and limit the rise in global temperatures. As of November 9, NZAM counted 291 signatories representing some $66 trillion in assets under management.
The exit from the initiative by Vanguard, which manages about $7 trillion in assets, is a blow to efforts to organise industries to move away from fossil fuels, despite the fact Vanguard insisted it “will not affect our commitment to helping our investors navigate the risks that climate change can pose to their long-term returns”.
As recently as May, Vanguard was touting commitments it had made in line with NZAM’s goals. On Wednesday, Vanguard posted a statement on its website saying industry initiatives like NZAM can create confusion.
“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,” Vanguard said in the statement.
Closely held Vanguard did not make executives available for comment. But its statement addresses a criticism from some investors and US Republican officials that efforts like NZAM go against antitrust rules. That concern had already led NZAM’s United Nations-affiliated parent to soften a policy on fossil-fuel financing.
Vanguard’s rivals, including BlackRock Inc, have taken the opposite stand and said their NZAM participation does not conflict with their independence. A BlackRock spokesman said on Wednesday the company remains part of NZAM.
Daniel Wiener, chairman of Adviser Investments in Newton, Massachusetts and a longtime Vanguard observer, said the firm’s withdrawal showed it lacked a strong leader on ESG issues that BlackRock has in its CEO, Laurence Fink.
“Backing out of this thing is simply Vanguard blowing with the winds of constant change. They don’t have a strong personality like Fink to champion a cause,” Wiener said.
Kirsten Snow Spalding, a vice president at sustainability nonprofit Ceres, an NZAM founding partner, said in a statement: “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.”
Lara Cuvelier, a campaigner at Reclaim Finance, said NZAM now can push harder for change.
“Vanguard was never serious about implementing its net zero commitment,” Cuvelier said in a statement.