Vanguard quits climate alliance in blow to net zero project

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

With $7.1tn under management and more than 30 million clients as of October 31, Vanguard is the world’s second largest money manager after BlackRock. The group said on Wednesday it was withdrawing from the Net Zero Asset Managers Initiative, whose members have pledged to achieve net zero carbon emissions by 2050.

Vanguard, which mainly manages passive funds that track market indices, said the union’s full commitment to tackling climate change had “caused confusion about the views of individual investment firms”.

“We have decided to withdraw from NZAM so that we can provide the clarity that our investors want about the role of index funds and about how we think about material risks, including climate-related risks – and Making clear that Vanguard speaks independently on matters of importance to our investors,” the Pennsylvania-based company said in a statement.

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NZAM was established in December 2020 and has 291 members managing $66tn in assets as of November. Last year NZAM teamed up with Climate Finance, the Glasgow Finance Alliance for Net Zero (Gfanz), launched last year under the leadership of former Bank of England Governor Mark Carney. Vanguard will leave both groups.

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

“It’s unfortunate that political pressure is affecting this critical economic need and trying to prevent companies from effectively managing risks,” said Kirsten Snow Spalding of Cirrus, a coalition of investor and environmental groups and also a founding partner of NZAM.

Many major global asset managers belong to NZAM, including BlackRock, State Street, JPMorgan Asset Management and Legal & General. Notable holdouts include Fidelity Investments and Pemco, 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 investment factors and net zero products to investors who want them. Vanguard will still ask the companies it invests in how they plan to address climate risks.

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Last month, a group of Republican attorneys general asked the Federal Energy Regulatory Commission not to renew Vanguard’s authority to buy stakes in U.S. utilities. They cited its NZAM membership as evidence that it seeks to influence corporate policy rather than passive investors.

The 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 under founder Larry Funk has been vocal about the need to consider climate change in investments. Texas Comptroller Glenn Hager said NZAM membership was one of the factors he used to compile a list of organizations he accused of “boycotting” fossil fuels.

The U.S. Attorneys General has also requested that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo disclose their involvement in the banking business of Geffins.

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Environmental groups accused Vanguard of double-dealing after the announcement.

“Vanguard has never been serious about reducing climate risk,” said Jesse Waxman, an official at 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 part of Gfanz’s asset owner, while investment consultancy Makita has left another part. Several Wall Street banks, including JPMorgan Chase, Morgan Stanley and Bank of America, have threatened to pull out in the summer as they worry they will be sued for increasingly tough decarbonisation commitments.

Geffens responded by undermining his alignment with the United Nations’ climate goals, which called on members to halve their emissions by 2030.

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