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

Vanguard is pulling out of a major financial alliance to fight climate change as US Republicans step up their attacks on financial institutions they say are hostile to fossil fuels.

With $7.1 trillion under management and more than 30 million clients as of Oct. 31, Vanguard is the second-largest global money manager after BlackRock. The group announced on Wednesday that it is withdrawing from the Net Zero Asset Managers initiative, whose members have pledged to achieve net zero carbon emissions by 2050.

Vanguard, which mainly manages passive funds that track market indices, said the alliance’s full commitment to fighting climate change had led to “confusion about the positions of individual investment firms”.

“We have decided to withdraw from NZAM so 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 is speaking independently of issues important to our investors,” the Pennsylvania-based company said in a statement.

NZAM was founded in December 2020 and had 291 members managing $66 billion in assets as of November. Last year NZAM joined the climate finance umbrella organisation, the Glasgow Net Zero Finance Alliance (Gfanz) following its launch last year under Mark Carney, 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 affecting this key economic imperative and trying to block companies from effectively managing risks,” 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 asset managers belong to NZAM, including BlackRock, State Street, JPMorgan Asset Management and Legal & General. Notable holdovers include Fidelity Investments and Pimco, both based in the US.

Vanguard said the move had been in the works for several months. It will continue to offer products that use environmental, social and investment factors in management and net zero products to investors who want them. Vanguard will also continue to ask investee companies 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 authority to buy shares of U.S. utilities. They cited his membership of NZAM as evidence that he was trying to influence corporate policy rather than being a passive investor.

The move is part of a larger Republican assault on ESG investing. Several Republican states have pulled cash management and other investment accounts from BlackRock, which under founder Larry Fink has been outspoken about the need to consider climate change when investing. Texas Comptroller Glenn Hegar said NZAM membership was one of the factors he used to compile a list of organizations he accused of “boycotting” fossil fuels.

Republican attorneys general also demanded that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo hand over information about their involvement in the Gfanza banking arm.

Environmental groups accused Vanguard of duplicity after its publication.

“Vanguard has never seriously considered climate risk mitigation,” said Jesse Waxman, a campaign finance official for the fossil-free Sierra Club. For Vanguard, “joining NZAM was just an exercise in greenwashing”.

At least two pension funds, Cbus Super and Bundespensionskasse, have left part of the Gfanza property owners, while investment consultancy Meketa has left another part. Several Wall Street banks, including JPMorgan Chase, Morgan Stanley and Bank of America, threatened to pull out over the summer because they were concerned they could be sued over increasingly stringent decarbonisation commitments.

Gfanz has responded by weakening its compliance with UN climate targets that call on members to roughly halve the emissions they are responsible for by 2030.

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