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Vanguard quits the climate alliance in the wind to the net zero project

Vanguard is pulling out of the main financial alliance to tackle climate change at a time when US Republicans have stepped up their attacks on financial institutions they say are hostile to fossil fuels.

With $7.1tn under management and more than 30 million clients as of October 31, Vanguard is the second largest global money manager after BlackRock. The group said on Wednesday it was withdrawing from the Net Zero Asset Managers 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 alliance̵[ads1]7;s full commitment to combating climate change had resulted in “confusion about the views of individual investment firms”.

“We have decided to withdraw from NZAM so that we can provide the clarity our investors want about the role of index funds and about how we think about material risks, including climate-related risks – and to make it clear that Vanguard speaks independently on issues of importance to our investors,” the Pennsylvania-based company said in a statement.

NZAM was founded in December 2020 and had 291 members managing $66tn in assets as of November. Last year, NZAM joined an umbrella organization for climate finance, the Glasgow Financial Alliance for Net Zero (Gfanz) at its launch last year under Mark Carney, the former Bank of England governor. Vanguard will leave both groups.

In a statement, NZAM said Vanguard’s decision was regrettable.

“It is unfortunate that political pressure is influencing this crucial economic imperative and attempting to block companies from effectively managing risk,” said Kirsten Snow Spalding of Ceres, a coalition of investors and environmental groups and also a founder of NZAM.

Most of the largest global asset managers belong to NZAM, including BlackRock, State Street, JPMorgan Asset Management and Legal & General. Key holdouts include Fidelity Investments and Pimco, both based in the US.

Vanguard said the move had been ongoing for months. It will continue to offer products that use environmental, social and governance investment factors and net zero products to investors who want them. Vanguard will also continue to ask the companies it invests in how they plan to manage climate risk.

Last month, a group of Republican attorneys general asked the Federal Energy Regulatory Commission not to renew Vanguard’s authorization to buy shares in U.S. energy companies. They cited the NZAM membership as evidence that it was trying to influence corporate policy rather than being a passive investor.

The move is part of a larger assault by Republicans on ESG investing. Several Republican states have pulled cash management and other investment accounts from BlackRock, which under founder Larry Fink has been outspoken about the need to factor climate change into investments. Texas Comptroller Glenn Hegar said NZAM membership was one of the factors he used to compile a list of organizations he accused of “boycotting” fossil fuels.

Republican 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.

Environmental groups accused Vanguard of duplicity after the announcement.

“Vanguard has never been serious about reducing climate risk,” said Jessye Waxman, an official with the Sierra Club’s fossil-free finance campaign. For Vanguard, “joining NZAM was just an exercise in greenwashing”.

At least two pension funds, Cbus Super and Bundespensionskasse, have left their stake in Gfanz, while investment consultancy Meketa has left another section. Several Wall Street banks, including JPMorgan Chase, Morgan Stanley and Bank of America, threatened to pull out over the summer over concerns they could be sued over increasingly stringent decarbonisation commitments.

Gfanz responded by weakening its alignment with the UN’s climate goals, which called on members to halve the emissions they are responsible for by 2030.

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