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Vanguard leaves the climate alliance in the blow-to-net-zero project

Vanguard leaves the climate alliance in the blow-to-net-zero project
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Vanguard is withdrawing from the main financial alliance fighting climate change at a time when US Republicans have ramped up their attacks on financial institutions they say are hostile to fossil fuels.

With $7.1 trillion in assets under management and more than 30 million clients as of October 31 vanguard is the second largest global wealth manager after BlackRock. The group announced Wednesday that it is exiting 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 alliance was fully committed to the fight climate change have “created 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 how we think about material risks, including climate-related risks – and to make it clear that Vanguard independently in matters speaks to our investors,” the Pennsylvania-based company said in a statement.

Founded in December 2020, NZAM had 291 members managing $66 trillion in assets as of November. Last year NZAM joined an umbrella organization for climate finance, the Glasgow Financial Alliance for Net Zero (Gfanz), which was formed last year Mark Carney, the former Governor of the Bank of England. 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 trying to prevent companies from effectively managing risk,” said Kirsten Snow Spalding of Ceres, a coalition of investors and environmental groups and also a founding partner of NZAM.

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

Vanguard said the move had been in the works for several months. It will continue to offer products that use Environmental, social and governance investments Factors and net zero products for investors who want them. Vanguard will continue to ask the companies it invests in how they plan to address climate risks.

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

The move is part of a larger Republican attack on ESG investing. Several Republican states have withdrawn cash management and other investment accounts Black Rock, which under founder Larry Fink has spoken openly about the need to consider climate change when investing. Texas Comptroller Glenn Hegar said NZAM membership was one of the factors he used to put together a sheet by organizations he accused of “boycotting” fossil fuels.

Republican attorneys general have also requested that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo release information about their stakes in Gfanz’s banking division.

Environmental groups accused Vanguard of duplicity after its announcement.

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

At least two pension funds, Cbus Super and Bundespensionskasse, have left Gfanz’s asset owner division, while investment consultancy Meketa has left another division. Several Wall Street banks including JPMorgan Chase, Morgan Stanley and Bank of America threatened with expulsion over the summer because they feared being sued over increasingly stringent decarbonization commitments.

Gfanz replied by weakening its alignment with the UN climate goals, which called on members to roughly halve their emissions by 2030.

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