Vanguard CEO Ties ESG Pact Withdrawal to Political Noise

GOP backlash contributed to No. 2 ETF issuer’s withdrawal from climate change alliance.

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Reviewed by: Michelle Lodge
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Edited by: Michelle Lodge

Confusion among investors and the need to clear the fog led Vanguard, the second-largest ETF provider after BlackRock, to pull out of a climate-change alliance, Chief Executive Officer Tim Buckley said. 

Buckley spelled out to the Financial Times why the Malvern, Pennsylvania investment firm resigned in December 2022 from the international Net Zero Asset Managers alliance (NZAM), which supports reaching net zero carbon emissions by 2050.  

Vanguard’s pullout followed barrages of complaints from Republicans over the use of environmental, social and governance factors when investing, who also maintain that the NZAM violates antitrust laws. NZAM has 301 signatories with $59 trillion in assets under management (AUM).   

“We felt that our voice was being drowned out or confused,” Buckley told the FT and added that the company’s view on managing climate-change risk, which zeroes in on company disclosure standards, remains unchanged. 

“It would be hubris to presume that we know the right strategy for the thousands of companies that Vanguard invests with,” he added. “We just want to make sure that risks are being appropriately disclosed and that every company is playing by the rules.” 

Vanguard has $2.01 trillion across 81 ETFs, and, as of Jan. 1, 2023, had $7.6 trillion AUM.  

Vanguard’s decision to leave the alliance is fueling a blast of political rhetoric, with opinions on both sides either supporting zero carbon emissions or promoting fossil fuel production.  

Buckley emphasized to the FT that Vanguard in not in “the game of politics.”  

That political divide has affected investments. Last year, so-called “Republican states,” such as Louisiana, Utah and Arkansas, withdrew $1 billion from BlackRock due to concerns about ESG, reported the FT, whereas New York City Comptroller Brad Lander said the firm wasn’t environmentally friendly enough.  

ESG funds with sustainable funds in the U.S.—including ETFs and mutual funds—shed a record $6.2 billion in last year’s fourth quarter. There were outflows of $2.1 billion on ESG-labeled funds in the last quarter of 2022, compared with $6.1 billion of inflows in the year-ago quarter, according to research firm Strategas Securities.    

 

Follow Michelle Lodge on Twitter at @lodgemich 

Michelle Lodge is a journalist who is a contributor to many sites: Fortune, Money, Time, Barron’s, Investopedia, CNBC.com and Bloomberg.com.