Investment Giant Vanguard Pulls Out of ‘Net-Zero’ ESG Initiative

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Company faces growing pressure from Republicans over environmental focus

FILE PHOTO: The logo for Vanguard is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 1, 2022. REUTERS/Brendan McDermid

Reuters • December 7, 2022 3:20 pm

By Noor Zainab Hussain and Ross Kerber

(Reuters)—Vanguard is pulling out of a major investment-industry initiative on tackling climate change in order to show that it acts independently and to provide clarity on its views to investors, the world’s top mutual fund manager said on Wednesday.

Top investors, such as Pennsylvania-based Vanguard, have faced growing pressure from Republican U.S. politicians over their use of environmental, social, and governance (ESG) factors in picking and managing securities.

The effort, known as the Net Zero Asset Managers (NZAM) initiative, was 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 Nov. 9, NZAM counted 291 signatories representing some $66 trillion in assets under management.

Vanguard had $7.1 trillion under management as of Oct. 31.

As recently as May Vanguard was touting commitments it had made in line with NZAM’s goals. But in a statement on its website on Wednesday Vanguard said while industry initiatives like NZAM can be constructive they can also create confusion about the views of individual firms.

“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.

Vanguard said the change “will not affect our commitment to helping our investors navigate the risks that climate change can pose to their long-term returns.”

The move is a blow to efforts to organize industries to move away from fossil fuels.

“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,” Kirsten Snow Spalding, a vice president at sustainability nonprofit Ceres, a NZAM founding partner, said in a statement.

Lara Cuvelier, 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.

(Reporting by Noor Zainab Hussain in Bengaluru and Ross Kerber in Boston; Editing by Anil D’Silva and Leslie Adler)

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