Problems for Vanguard

The Asset Management profession is keen to do its part towards negating Climate change and at Trinity we believe the deployment of capital towards businesses which will have a positive impact on the environment and society are a big part of the answer.

December 2020 saw the formation of the Net Zero Asset Managers (NZAM) initiative which now has 291 signatories and $66 trillion under management.

NZAM was formed to support the goal of net zero greenhouse gas emissions by 2050 (or sooner) in line with global efforts to limit warming to 1.5 degrees Celsius, and to support investing aligned with net zero emissions by 2050 or sooner.

In other words, these asset managers are working towards a time when 100% of the assets they are responsible for will be in line with the above goal. As at November 2022, 86 of the fund managers had disclosed their initial targets or the proportion of assets managed in line with achieving net zero by 2050 or sooner.

This is all good news!

Vanguard Asset Management

 

In December 2022 Vanguard announced that they were withdrawing from this initiative. This is a major blow as Vanguard are the second largest fund managers in the world.

Vanguard have cited the need to provide clarity to investors and to show that the firm ‘speaks for itself’

Critics will argue that they are bowing to pressure from Republican politicians who are in favour of continued fossil fuel extraction.  This is essentially where the rubber hits the road. Was there integrity in their initial commitment, considering how easily they have retreated? This is a worrying trend and follows the Chief Executive of JP Morgan denying that the bank has a policy against funding new oil and gas projects when 2 years ago he was claiming that he would align the bank investments in fossil fuels to the Paris Agreement.

As advisers we are grappling with whether the actions of the fund houses themselves are sufficient reason to exclude from investing through them. In selecting Social impact funds, our partners Worthstone do incorporate this into their decision process. Alternatively, do we apply pragmatism, accepting that an ‘Ethical’ fund will still be making some difference whoever the fund manager?

In fairness to Vanguard, this withdrawal does not make Vanguard ‘unethical’ in the same way that although my son is not a member of The Vegan Society, he is every bit a Vegan!

However, there is an uncomfortable hypocrisy when a fund house can have 2 funds where one would exclude a stock based on its negative impact on the environment or society whilst the other will happily buy it.

It is a pipe dream to expect that all funds will only invest in companies which are having a positive impact, but it could become a reality if it was only this mandate that investors demanded.