The world's second-largest asset manager emphasizes its responsibility to optimize client returns
Vanguard, the world's second-largest asset management, has refused to terminate its support for coal, oil, and gas production and stop making new investments in fossil fuel projects.
Tim Buckley, Vanguard chief executive, said the company, which manages $8.1tn for over 30 million investors and is the world's largest coal investor, was committed to protecting its clients from climate risks. However, that did not mean it would stop making new commitments to fossil fuel companies.
In an interview with the Financial Times, Buckley said, “Vanguard does not seek to direct company strategy. We engage with companies on climate change, ask them to set goals and to report how they are mitigating climate risks. That transparency will ensure that climate risks are priced appropriately by the market.”
He added that companies with a big carbon footprint could be crucial in the transition to a low-carbon future.
“Our duty is to maximize long-term total returns for clients. Climate change is a material risk but it is only one factor in an investment decision. There is already a pensions crisis and we have to make sure that climate concerns do not make that even worse,” Buckley stated.
Buckley spoke ahead of Vanguard's first progress report on its goal of reaching net zero carbon emissions across all of its investment portfolios by 2050. Only $290 billion, or 17% of Vanguard's $1.7tn in actively managed assets, will be in line with net zero by 2050.
By 2030, nearly half of the $290 billion will be net zero aligned, according to the Net Zero Asset Managers effort, a consortium of 235 significant investors that manage $57.5 tn in assets.
Vanguard, on the other hand, has chosen not to establish interim net zero targets for its passive index-tracking funds, which account for most of its assets.
This is because net zero targets were not included in the funds' initial objectives.
Asset managers in the United States have a fiduciary duty to maximize returns, so adding goals that aren't listed in a fund's prospectus could put them in legal hot water. Active managers have more discretion over which aspects to consider when determining which companies to purchase.
Vanguard also believes that reaching a 50% reduction in emissions in these passive funds by 2030 will be challenging without significant action from the firms and a lot more information on how government policy might evolve.
Environmentalists claim that none of the world's three major asset managers — BlackRock, Vanguard, and State Street — have strategies in place that will result in absolute carbon emissions reductions by the end of the decade.
In a fossil fuel and climate change evaluation published in April by Reclaim Finance and Urgewald, two environmental advocacy groups, Vanguard came in last out of 25 large asset managers.
“Asset managers need to send clearer signals to the fossil fuel industry. Any investor committed to achieving carbon neutrality by 2050 must immediately cease all investments in companies developing new oil and gas supply projects,” said Lara Cuvelier from Reclaim Finance.
