When individual actors have their own truth
With global news outlets focussed on revelations from Harry & Meghan that life in the media spotlight, as part of a global organisation, is tough (who knew?) Vanguard, the second largest money manager after BlackRock, have withdrawn from the Net Zero Asset Managers alliance (NZAM).
To continue the theme of individual truths being ‘their truth’ the Pennsylvania-based company said in a statement; “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’s withdrawal from NZAM comes at a when Republicans in the US have stepped up their attacks on financial institutions that they say are hostile to fossil fuels. With $7.1tn under management it’s a significant loss for the NZAM initiative, whose members have committed to achieving net zero carbon emissions by 2050.
Vanguard, which mainly manages passive funds that track market indices, said the alliance’s full-throated commitment to fighting climate change had resulted “in confusion about the views of individual investment firms”.
NZAM was founded in December 2020 and had 291 members managing $66tn in assets as of November. Last year NZAM joined an umbrella climate finance organisation, the Glasgow Financial Alliance for Net Zero (Gfanz) upon its launch last year under Mark Carney, the former Bank of England governor. Vanguard will exit both groups. In a statement, NZAM said Vanguard’s decision was regrettable. “It is unfortunate that political pressure is impacting this crucial economic imperative and attempting to block companies from effectively managing risks,” said Kirsten Snow Spalding of Ceres, a coalition of investors and environmental groups and also a founding partner of NZAM.
Vanguard are not alone in their change of heart. In January of this year, bigger brother BlackRock indicated its support for US shareholder proposals for ESG issues was waning to nearly half at AGM gatherings, down to just 24 per cent voting pressure. It follows a warning in May by BlackRock that shareholder proposals were becoming ‘too prescriptive’ in light of Russia’s invasion of Ukraine totally changing the investment calculus.
With mounting pressure from a group of Republican attorneys-general last month asking the Federal Energy Regulatory Commission not to renew Vanguard’s authorisation to buy shares in US utilities. They cited its NZAM membership as evidence that it was trying to influence corporate policy rather than being a passive investor. That move is part of a larger attack by Republicans on ESG investing. Several Republican states have pulled cash management and other investment accounts from BlackRock, which has under founder Larry Fink been outspoken about the need to take into account climate change in investing.
Texas comptroller Glenn Hegar said NZAM membership was one of the factors he used to compile a list of organisations he accused of “boycotting” fossil fuels.
Republican state attorneys-general have also demanded that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo turn over information about their involvement in the banking arm of Gfanz.
Several Wall Street banks including JPMorgan Chase, Morgan Stanley and Bank of America threatened to pull out over the summer because they were concerned that they could be sued over increasingly stringent decarbonisation commitments. Gfanz responded by weakening its alignment with UN climate goals that called for members to roughly halve the emissions they are responsible for by 2030.
But these are not entirely isolated parties walking away from climate focussed groups. At least two pension funds, Cbus Super (who have spoken at RAO Global conferences in the past) and Bundespensionskasse, have left the asset owner section of Gfanz, while investment consultancy Meketa has left another section.
The reality of these moves is that they add to investors having to work harder to discern the motives behind all advice from partners and in the process, either create, or in popular parlance, come to terms with ‘their own truth’
Who needs Netflix when there are daily developments in the drama called ‘Responsible Investing?’
