Business Vanguard quits net zero climate effort, citing need for independence - A big name leaves the ESG world.

Article (Archive)

Dec 7 (Reuters) - Vanguard Group Inc is pulling out of a major investment-industry initiative on tackling climate change, the world's biggest mutual fund manager said on Wednesday, explaining it wants to demonstrate independence and clarify its views for investors.

Top investors including Pennsylvania-based Vanguard, face mounting pressure from Republican U.S. politicians over their use of environmental, social and governance (ESG) factors in picking and managing securities.

One focus of criticism has been the effort known as the Net Zero Asset Managers (NZAM) initiative, launched in late 2020 to encourage fund firms to reach net zero emission targets by 2050 and limit the rise in global temperatures. As of Nov. 9, NZAM counted 291 signatories representing some $66 trillion in assets under management.

The exit from the initiative of Vanguard, which manages about $7 trillion in assets, is a blow to efforts to organize industries to move away from fossil fuels even though the fund manager insisted it "will not affect our commitment to helping our investors navigate the risks that climate change can pose to their long-term returns."

As recently as May Vanguard was touting commitments it had made in line with NZAM's goals. On Wednesday Vanguard posted a statement on its website saying industry initiatives like NZAM can create confusion.

"We have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors," Vanguard said in the statement.

Closely held Vanguard did not make executives available for comment. But its statement addresses a criticism from some investors and U.S. Republican officials that efforts like NZAM go against antitrust rules. That concern that had already led NZAM's U.N.-affiliated parent to soften a policy on fossil fuel financing.

Vanguard rivals including BlackRock Inc (BLK.N) have taken the opposite stand and said their NZAM participation does not conflict with their independence. A BlackRock spokesman said on Wednesday the company remains part of NZAM.

Daniel Wiener, chairman of Adviser Investments in Newton, Massachusetts and a longtime Vanguard observer, said the firm's withdrawal showed it lacked a strong leader on ESG issues that BlackRock has in its CEO Laurence Fink.

"Backing out of this thing is simply Vanguard blowing with the winds of constant change. They don’t have a strong personality like Fink to champion a cause," Wiener said.

Kirsten Snow Spalding, a vice president at sustainability nonprofit Ceres, a NZAM founding partner, said in a statement that "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,"

Lara Cuvelier, campaigner at Reclaim Finance, said NZAM now can push harder for change. "Vanguard was never serious about implementing its net zero commitment" Cuvelier said in a statement.

 

[spinal gas chamber]

I’ve always wondered how you invest in a fund with goals that have nothing to do with making money and everything to do with changing the climate or promoting diversity or whatever. Why even invest?

Just buy the stocks of the companies you believe in instead. The whole point of funds is either to get something for free (like no load index funds) or to get better management of some sort of mix that you like (small csp, big cap, whatever). Funds with fees enrich Wall Street. But at least the managers are held accountable for performance.

Buying a fund to change the world gets you nothing but paying a fund manager who doesn’t have any responsibility to pay you. So again, why do it?

 

[Your Starter for 10]

I’ve always wondered how you invest in a fund with goals that have nothing to do with making money and everything to do with changing the climate or promoting diversity or whatever. Why even invest?

To be fair, most of these government backed enviro-scams have been great investments.

 

[spinal gas chamber]

To be fair, most of these government backed enviro-scams have been great investments.

Ok I won’t argue that - but why a fund instead of the stock directly?

 

[Burd Turglar]

Invest in wind energy, those turbines are the only way we can stop the CIA "birds".

 

[scallion]

Ok I won’t argue that - but why a fund instead of the stock directly?

Auto-diversification for your portfolio for people who invest idly rather than research and trade actively.

 

[George Floyd Sneed]

Public companies being forced to follow arbitrary ESG scores is actually illegal under American law and any attorneys general are well within their rights to investigate. Even if Vanguard backs out, fuck em, investigate them anyway. Lots of damage has been done in the name of ESG and DIE, time to expose it for the world to see.

 

[Lord of the Large Pants]

Public companies being forced to follow arbitrary ESG scores is actually illegal under American law and any attorneys general are well within their rights to investigate. Even if Vanguard backs out, fuck em, investigate them anyway. Lots of damage has been done in the name of ESG and DIE, time to expose it for the world to see.

Illegal how?

 

[Spasticus Autisticus]

Buying a fund to change the world gets you nothing but paying a fund manager who doesn’t have any responsibility to pay you. So again, why do it?

Individual stock investment is unlikely to outperform the market. The exception is if you have the time and ability to do fundamental research on companies (pore over SEC filings, read earnings reports, do sector research, etc.) Very few investors have that luxury and even then most of them don’t put all their money into individual stock plays.

So that leaves buying the market as the most reliable money-making strategy. Most investors don’t have the money to buy appreciable amounts of each S&P 500 constituent nor the time to rebalance each holding to keep their cap weights in line. That’s what buying an index fund gets you. Buying an ESG-focused fund is retarded and anyone who does it deserves to lose money. The problem is that Vanguard and Blackrock are the biggest custodians of regular index funds, the investors of which don’t necessarily care about ESG. These funds are leveraging this proxy voting power over companies to push ESG initiatives on companies. Often times investors don’t even have a choice. My 401k for example only has one S&P 500 index fund and it’s run by Vanguard. The best alternative is to put it in a money market fund which is run by Blackrock.

Going to shill for Strive funds which is an explicitly anti-ESG fund manager. Their expense ratios are slightly higher than Blackrock et al. but they are doing good work at influencing companies away from ESG. I wouldn’t be surprised if they had a hand in this.

 

[Stoneheart]

So that leaves buying the market as the most reliable money-making strategy. Most investors don’t have the money to buy appreciable amounts of each S&P 500 constituent nor the time to rebalance each holding to keep their cap weights in line. That’s what buying an index fund gets you. Buying an ESG-focused fund is retarded and anyone who does it deserves to lose money. The problem is that Vanguard and Blackrock are the biggest custodians of regular index funds, the investors of which don’t necessarily care about ESG. These funds are leveraging this proxy voting power over companies to push ESG initiatives on companies. Often times investors don’t even have a choice. My 401k for example only has one S&P 500 index fund and it’s run by Vanguard. The best alternative is to put it in a money market fund which is run by Blackrock.

there are plenty of cheap ETFs that are more than just buying the S&P 500.

Auto-diversification for your portfolio for people who invest idly rather than research and trade actively.

most of the money comes from Pension funds and other Retirement investments, private people investing into them are pretty rare...

 

[TerminalTryHard]

I’ve always wondered how you invest in a fund with goals that have nothing to do with making money and everything to do with changing the climate or promoting diversity or whatever. Why even invest?

Just buy the stocks of the companies you believe in instead. The whole point of funds is either to get something for free (like no load index funds) or to get better management of some sort of mix that you like (small csp, big cap, whatever). Funds with fees enrich Wall Street. But at least the managers are held accountable for performance.

Buying a fund to change the world gets you nothing but paying a fund manager who doesn’t have any responsibility to pay you. So again, why do it?

The idea is the classic have your cake and eat it too. The pitch was investing along your morals, the belief you could match or even beat convention funds. This has never been true as ESG funds struggle just to match conventional funds and for the most part fail to even do that.

 

[Burgerasssand]

Never forget what they tried to do. Never forget that they WILL try to do it again.

 

[wtfNeedSignUp]

Public companies being forced to follow arbitrary ESG scores is actually illegal under American law and any attorneys general are well within their rights to investigate. Even if Vanguard backs out, fuck em, investigate them anyway. Lots of damage has been done in the name of ESG and DIE, time to expose it for the world to see.

I have a feeling that lawyers that tried tend to get disbarred and die mysteriously.

Ok I won’t argue that - but why a fund instead of the stock directly?

The funds are seen as too big to fail and will likely be saved by the government in case of a crash, though only the richest will get their money back.

 

[Bonesjones]

I bet this is a direct result of Florida pulling their pension funds from ETFs.

 

[Zbk3VmLfujjzjxBd43tL]

I’ve always wondered how you invest in a fund with goals that have nothing to do with making money and everything to do with changing the climate or promoting diversity or whatever. Why even invest?

Just buy the stocks of the companies you believe in instead. The whole point of funds is either to get something for free (like no load index funds) or to get better management of some sort of mix that you like (small csp, big cap, whatever). Funds with fees enrich Wall Street. But at least the managers are held accountable for performance.

Buying a fund to change the world gets you nothing but paying a fund manager who doesn’t have any responsibility to pay you. So again, why do it?

Because supposedly climate change poses such a big threat to long-term profits that it's worth investing in Net Zero Emissions or whatever. Just like supposedly diversity = profit so it's worth investing in.

 

[TerminalTryHard]

I bet this is a direct result of Florida pulling their pension funds from ETFs.

Possible but unlikely. Since ESG has been a thing there's been people predicting that the second the economy got tough it would die a painful death. This is most likely just the beginning of things to come and soon the only ones left in the ESG craze will be the true believers coping about "much principles" and about how renewables are the future.

 

[reptile baht spaniard rid]

Illegal how?

the argument I've seen put forward is it represents a cartel (illegal-type) - convincing multiple companies in an industry to do something "against their best judgement" which causes prices to rise, or something like that.

 

[Marvin]

Illegal how?

@NeoGAF Lurker can correct me, but I'm guessing he meant a violation of fiduciary duty.

Generally speaking, managers of public corporations or similar arrangements are obligated to get the best return for their shareholders. That's their main duty and violating it (reasonably provably) by diverting some of their attention away from profit can get them investigated by the SEC, I would imagine.

So if a fund manager ignored more profit-focused, blunt companies in lieu of woke companies with lower returns, they might be in trouble.

This is an interesting paper about how this might work legally.

 

[George Floyd Sneed]

@NeoGAF Lurker can correct me, but I'm guessing he meant a violation of fiduciary duty.

Generally speaking, managers of public corporations or similar arrangements are obligated to get the best return for their shareholders. That's their main duty and violating it (reasonably provably) by diverting some of their attention away from profit can get them investigated by the SEC, I would imagine.

So if a fund manager ignored more profit-focused, blunt companies in lieu of woke companies with lower returns, they might be in trouble.

This is an interesting paper about how this might work legally.

You’re right. Having said that, I believe they covered themselves initially by claiming hiring more women and niggers would result in some secret revenue multipliers, if you read the DIE material, that claim is often made. However, they can look at their earnings statements, see that’s not true, and they can be back on the hook for fiduciary irregularities. Of course, if discovery was made and Vanguard knew they were bullshit all along, that would get them in trouble.

Something spooked them to at least present the facade they’re taking a step back. That or they found a more devious way to achieve their goals without being as blatant as ESG and DIE plans. Something is very likely afoot and we’ll have to stay vigilant to see what the next step is going to be.

 

[TowinKarz]

Don't overthink it, they're probably bailing because they can see that unlike previous environmental regs and practices that were just window dressing, these ones being demanded today will outright kill industries.

Actual green businesses don't make profits.