Vanguard Group has announced that it is withdrawing from the Net Zero Asset Managers initiative, an investment industry initiative whose members are committed to achieving net zero carbon emissions by 2050.
In a statement on Wednesday Vanguard said: “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. This decision is part of our continuous assessment of our participation in external organizations and their ongoing alignment with Vanguard’s mission and perspectives on investing.”
Vanguard joined NZAM, which was started in late 2020 with the goal of motivating fund companies to reduce emissions to net zero by the year 2050, in 2021. NZAM has 291 signatories who collectively manage around $66 trillion in assets.
Leading investors that consider environmental, social, and governance (ESG) concerns when choosing and managing assets, including Vanguard, are coming under increasing pressure from Republican U.S. legislators.
DeVere Group CEO Nigel Green says: “Republicans in the U.S. appear to be stepping up their attacks on financial institutions that they say are hostile to fossil fuels. There can be no doubt that Republican states like Texas, Florida, Louisiana and South Carolina have ESG investing in their sights. Florida governor, Ron DeSantis is helping to lead the charge, supporting a recent resolution by the Florida State Board of Administration claiming the state would not back “ideological” investing.
“In Louisiana, the state treasurer has confirmed it’s pulling $800m from funds that some have deemed to be pushing a more ‘woke’ agenda. Against this background, it can be reasonably assumed that heightening political pressure is responsible for a growing number of financial firms stepping away from their own commitments and from offering ESG investing to their clients.”
He adds: “The ESG backlash is here. But it is misguided. We need to get back to the fundamentals. A failure to know a company’s impact on the environment and on society is a failure to understand the impact on long-term returns to investors. ESG frameworks give intelligence about where the key shifts and trends are taking place now and in the future, and how disruptive they could turn out to be. This then fuels business, development and innovation activities which are likely to present major opportunities for investors because it provides intelligence on factors which will cause changes in markets.”
“It’s clear that companies with strong ESG credentials compete better with their peers in terms of related technology, innovation and regulation. In addition, they are more successful at recruiting and retaining top talent.
“There needs to be unprecedented levels of cooperation between financial advisories, insurance firms, banks, wealth and asset managers, investment companies, fintech groups, banks and auditors, amongst others, to help unlock and mobilise the trillions of dollars of private finance that is urgently required. Without this cooperation, the level of finance will not be available, nor at the pace necessary, to halt the worst effects of human-created global warming.
“It’s regrettable that some within the global finance community appear to be stepping away from their roles in addressing the climate crisis. I suspect they are positioning themselves on the wrong side of history.”