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World’s Largest Mutual Fund Manager Quits Net Zero Effort

Major investors, including Vanguard, are facing pressure from US Republican politicians over the use of ESG factors in investments.

Vanguard Group Inc is withdrawing from a leading investment industry initiative to tackle climate change, the world’s largest mutual fund manager has said, explaining that it wants to demonstrate independence and make its views clear to investors.

Major investors, including Pennsylvania-based Vanguard, are facing increasing pressure from US Republican politicians over their use of environmental, social and governance (ESG) factors in stock selection and management.

A focus of criticism has been the effort known as the Net Zero Asset Managers (NZAM) initiative, launched in late 2020 to encourage fund firms to achieve net-zero emissions targets by 2050 and limit the rise in global temperatures. As of November 9, NZAM had 291 signatories representing some $66 billion in assets under management.

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The exit of the initiative by Vanguard, which manages about $7 trillion in assets, is a blow to efforts to organize industries to move away from fossil fuels, even though Vanguard insisted that “It will not affect our commitment to help our investors navigate risk.” that climate change may do to their long-term benefits.

As recently as May, Vanguard was promoting the commitments it had made in line with NZAM’s goals. On Wednesday, Vanguard posted a statement on its website saying that industry initiatives like NZAM can create confusion.

“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 how we think about material risks, including weather-related risks, and to make it clear that Vanguard is talking about independently on matters of importance to our investors,” Vanguard said in the statement.

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The privately owned Vanguard did not make executives available for comment. But his statement addresses criticism from some US Republican investors and officials that efforts like NZAM run counter to antitrust rules. That concern had already prompted NZAM’s United Nations-affiliated parent to soften a policy on fossil fuel financing.

Vanguard’s rivals, including BlackRock Inc, took the opposite position, saying its stake in NZAM does not conflict with its independence. A BlackRock spokesman said Wednesday that the company remains part of NZAM.

Daniel Wiener, president of Adviser Investments in Newton, Massachusetts and a longtime Vanguard watcher, said the company’s withdrawal showed it lacked the strong leader on ESG issues that BlackRock has in chief executive Laurence Fink.

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“Retiring from this is just Vanguard blowing with the winds of constant change. They don’t have a strong personality like Fink to champion a cause,” Wiener said.

Kirsten Snow Spalding, vice president of sustainability nonprofit Ceres, a founding partner of NZAM, said in a statement: “It is unfortunate that political pressure is taking a toll on this crucial economic imperative and attempting to prevent companies from managing risk effectively, a crucial part of their fiduciary duty.”

Lara Cuvelier, campaigner for Reclaim Finance, said NZAM can now push harder for change.

“Vanguard was never serious about implementing its net zero emissions commitment,” Cuvelier said in a statement.

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