Vanguard announced its withdrawal from the Net Zero Asset Managers initiative (NZAM), which it, along with BlackRock, joined in early 2021. Launched in December 2020 (we reported on here), the NZAM calls for a commitment to specific emissions reductions targets, goals, and investment and stewardship activities to promote those goals. As detailed here (see “The Net Zero Asset Managers Commitment”), signatories agree to implement a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with the initiative’s ambition for all assets under management to achieve net zero emissions by 2050.
Among other things, Vanguard’s announcement reflects a seemingly well-considered response to one of an increasing number of climate-related investment campaigns and initiatives that impose expectations of behavior that investor participants/signatories may deem to be inconsistent with their overriding stewardship responsibilities. The announcement comes on the heels of a number of recent, widely publicized developments that illustrate the politicization and polarization of climate change-related issues and views, respectively (see, e.g., “Republican attorneys general target Vanguard's ESG policies in protest with FERC” (S&P Global Market Intelligence); “BlackRock, Vanguard Blasted by GOP Senators for ESG Proxy Voting” (Bloomberg Law) and the referenced report: “The New Emperors: Responding to the Growing Influence of the Big Three”; “Quakers protest Vanguard climate policy in Malvern, Pa., while others bemoan ‘woke’ Wall Street” (Inquirer); and our report: “ESG Backlash Revealed by State Legislation”).
Vanguard explained:
Such industry initiatives can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms. That has been the case in this instance, particularly regarding the applicability of net zero approaches to the broadly diversified index funds favored by many Vanguard investors. Therefore, after a considerable period of review, 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 announcement makes clear that Vanguard’s decision to withdraw from the initiative does not reflect a change in its views about managing and mitigating climate change risks— as the knowledge and understanding of such risks continue to evolve, but rather a determination that the implications of its inclusion in the initiative are not aligned with its investment mission and perspectives, which are heavily influenced by its predominantly, broadly diversified passive investments/index fund portfolio, which NZAM has previously acknowledged as a challenge in relation to alignment with net zero commitments.
See these articles: “Vanguard defends strategy as critics pile on after net-zero exit” (Pensions & Investments); “Vanguard Defects From the Climate Club” (WSJ); “Vanguard jumps ship at NZAM initiative” (ESG Clarity),” “Vanguard Quits Net-Zero Group, Marking Biggest Defection Yet” (Bloomberg), “New York City comptroller slams Vanguard over NZAM withdrawal” (Responsible Investor), “Vanguard quits Net Zero Asset Managers initiative” (Pensions & Investments), “Vanguard quits net zero climate effort, citing need for independence” (Reuters), “Vanguard Drops Out of Net Zero Asset Managers Initiative” (ESG Today), and additional resources on our Institutional Investors page »Vanguard.
This post first appeared in the weekly Society Alert!