In early April, a 30-second television ad began airing in rural Pennsylvania close to where Vanguard, the giant asset manager, is headquartered. “When you save with Vanguard, you’re an owner of a catastrophic climate future,” the ad intoned. Sponsored by SOS, a network of civil-society organizations and financial experts, the ad criticized Vanguard for holding over $300 billion in the equities of fossil fuel companies.
Vanguard Confronts an Inconvenient Truth
Its controversial withdrawal from a climate alliance actually clarifies the path to net zero.
April 24, 2023
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Summary.
Vanguard had previously joined the Net Zero Asset Manager’s initiative (NZAM) in 2021, but withdrew 21 months later, citing confusion about individual firms’ views. Vanguard is unique in its ownership structure, commitment to passive index-based low-fee funds, and focus on retail investors. It has taken a more cautious approach to ESG investing and doesn’t heavily rely on external ESG ratings services. Critics argue that Vanguard should compel companies to decarbonize to prevent portfolio losses, but this overlooks asset managers’ primary duty and overstates ESG investing’s impact. Vanguard believes that addressing climate change requires governmental action and that the industry should aggressively endorse this path. Regulatory changes clarifying sustainable investing and a bifurcation of ESG investing can enable more authentic decarbonization. Vanguard’s NZAM withdrawal acknowledges the limits of win-win ESG “solutions” and clarifies the path to urgent decarbonization.