Vanguard, the world’s second-largest investment fund manager after BlackRock, is finding itself in a political tug of war in the US that now has led to its decision to withdraw a top international alliance of asset managers that seeks to promote sustainable, net zero investments, the Net Zero Asset Management initiative, also known as NZAM.
Vanguard’s announcement comes a week after 13 Republican-led states in the US asked the federal government to stop Vanguard from buying US utility stocks because of its relationship with anti-fossil fuel activists. The states argued that alternatives to fossil fuels are more expensive and less reliable and putting the public, as well as investors, at risk.
“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 firm said in a statement issued on Wednesday.
UN-backed initiative
NZAM is an initiative led by former Bank of England governor Mark Carney that was founded last year as part of the Glasgow Financial Alliance for Net Zero, or Gfanz, a group of banks, insurers and asset managers with total assets worth some 153 trillion dollars. Carney is UN Special Envoy for Climate Action and Finance
Vanguard is not the only major US asset manager recently bowing to pressure from anti-ESG state governments. The state of Florida last week said it would pull 2 billion dollars from assets managed by BlackRock because the state disagrees with the firm’s ESG policies. Florida also wants to remove BlackRock from managing its state pensions, Bloomberg reported on Thursday.
‘Confusion’
Pennsylvania-based Vanguard said that the NZAM initiative has resulted in “confusion about the views of individual investment firms” over the role that asset managers can play in financing initiatives in regards to sustainability, climate change and ESG.
“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 favoured by many Vanguard investors,” Vanguard said.
Vanguard has invested more than 60 billion dollars worth of the 10 largest electric utilities. If Vanguard were to be restricted from buying their shares, it could be hard for its funds and ETFs to maintain their performance in line with major indices that include these big utilities.
Vanguard owns approximately 8.9 percent of BlackRock, which is facing pressure from both pro-ESG and anti-ESG sides. BlackRock earlier this week was confronted with criticism from activist investor Bluebell Capital for not living up to the ESG ambitions stated repeatedly by its chairman and CEO Larry Fink.