Vanguard has left the net zero asset managers initiative, saying it wants to provide investors with more clarity over the role of climate initiatives in passive investing.
In a statement this week (December 7), the money manager, which has 30mn customers, said it had joined the initiative last year due to its commitment to promoting the disclosure of material financial risks from companies held in portfolios.
“Such industry initiatives can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms,” it said, saying this was why it has decided to leave.
Vanguard said there was a particular issue with the applicability of net zero approaches to the index funds in which the majority of its clients invest.
Around 80 per cent of Vanguard’s clients’ assets are investing through index funds, which track market indexes such as the FTSE 100.
Vanguard noted that its index fund managers do not chose the securities in a fund, or dictate a portfolio company’s strategy or operations.
“Instead, they buy and hold all securities included in the benchmark index and capture the return that the market provides.
“In the words of our founder, Jack Bogle, rather than searching for the needle in the haystack, buy the whole haystack.”
This approach has helped build wealth more millions of everyday investors, the company said, and indexing relies of efficient and fair capital markets.
The company said this decision will not affect its commitment in helping investors understand the risks that climate change can pose to long-term returns.
“Companies’ disclosure of material financial risks is central to that market health, which is why material risk identification and disclosure is a critical priority for Vanguard.”
Kirsten Snow Spalding, vice president at Ceres, the founding partner of the alliance, said it "regrets" that Vanguard has left the initiative.
"It is unfortunate that political pressure is impacting this crucial economic imperative and attempting to block companies from effectively managing risks -- a crucial part of their fiduciary duty.
Investors know that to address the systemic and financial risks of climate change and other sustainability risks, they must align their investment strategies with the science-based limits on temperature rise that are causing significant financial risks to every sector and every company in the global economy."
Net zero ambitions
The move is a blow to the alliance, whose signatories include a number of asset managers such as Invesco, Schroders and M&G Investments.
It was founded in December 2020 and in November this year had 291 members managing $66tn (£54tn).
The news comes after an activist investor called on BlackRock's chief executive officer, Larry Fink, to resign over the asset manager's "inconsistent" ESG policies.
ESG discrepancies
ESG investing has been under scrutiny this year, as regulators, asset managers and intermediaries have struggled to define its meaning without official guidance.
