“Anti-awakening” reaction? Fund giant Vanguard quits net zero climate alliance

Some environmental groups who are keeping promises of net-zero greenhouse gas emissions from the lifeblood of the economy — financial services and banking — called the exit a blow to the effort. These groups have argued that such a move bows to “anti-awakening” sentiment that investments focused on the impending transition to clean energy and other pro-climate actions come only at the expense of returns. on investment.

The alliance, called Net Zero Asset Managers (NZAM), was launched in late 2020 to encourage asset managers to achieve a goal of net zero emissions by 2050 and help keep a global temperature rise to 1, 5 degrees Celsius. It is a voluntary temperature target agreed at the pivotal climate meetings in Paris in 2015 and is considered the key marker for slowing atmospheric warming, calming ocean acidification, preventing coastal erosion and limiting severe droughts and other deadly and costly environmental changes.

Additionally, the NZAM pact ostensibly means members should be more transparent and align goals within the peer group, its proponents argue.

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“We have decided to withdraw from NZAM so that we can provide the clarity our investors want about the role of index funds and how we think about material risks, including climate-related risks,” Vanguard said in a statement. communicated on its website.

“Such industry initiatives can advance constructive dialogue, but at times they can also confuse the views of individual investment firms. This has been the case in this instance, particularly with respect to the applicability of net zero approaches to the broadly diversified index funds favored by many Vanguard investors,” the statement continued.

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The Biden administration has also attempted to steer the U.S. economy as a whole toward net-zero emissions by 2050, as most major industrial economies have done. Net-zero can be achieved by burning less fossil fuels like coal, CL00 oil,
+1.15%
and natural gas NG00,
+1.05%,
but also by offsetting greenhouse gas emissions by planting carbon-sucking trees or capturing and storing carbon at the point of combustion.

“This change in NZAM membership will not affect our commitment to helping our investors manage the risks that climate change may pose to their long-term returns,” Vanguard said, adding that it will continue to provide investors the information and products seen pushing the United States. to net zero emissions in the coming decades.

With BlackRock BLK,
-0.16%
and State Street STT,
+8.19%,
Vanguard, with about $8.1 trillion under management, is considered one of the big three index fund managers that dominate much of US retail investing and retirement planning.

“Vanguard has long lagged even its own industry peers in mitigating climate risk, but at least it claimed to be moving in the right direction,” said Casey Harrell, senior strategist at Vanguard. Vanguard SOS climate policy.

“Now, with its decision to leave NZAM, the company is giving up all pretense,” Harrell said. “Vanguard is bowing to right-wing political pressure instead of serving the best interests of its customers. It is now clear that investors concerned about climate risk should invest elsewhere.

Lara Cuvelier, a sustainable investing campaigner with Reclaim Finance, said she thinks Vanguard’s participation in NZAM to date is more of a publicity stunt and less pragmatic action.

“The initiative will no longer be held back by the lack of action from such a big player and can move forward and push its members to reach net zero and stop driving us towards climate chaos,” said- she declared.

BlackRock also made headlines in recent days after Florida said it was transferring $2 billion in taxpayer assets from accounts with the fund manager, whose chief Larry Fink said the fight against the climate change was a major investment theme in his life and beyond. The Florida Republican CFO said big asset managers should focus on producing returns rather than promoting environmental, social and governance (ESG) principles.

“As a fiduciary, everything we do is for the sole purpose of generating returns for our clients,” BlackRock said in response. “We are surprised by the Florida CFO’s decision given the strong returns BlackRock has provided to Florida taxpayers over the past five years. Neither the CFO nor his staff raised any performance issues.

BlackRock joined the NZAM initiative as a signatory in March 2021.

Vanguard’s withdrawal from the pact also comes weeks after a U.S. Department of Labor ruling that explicitly allows pension plan trustees to consider climate change and other ESG characteristics when selecting investments or satisfaction. shareholders’ demands, as long as economic considerations remain a priority. And the regulations pave the way for more 401(k) employment retirement plans to offer ESG and so-called sustainable funds.

The rule, first proposed in October 2021, essentially reverses two actions advanced under the Trump administration that would have restricted consideration of ESG.