Tim Buckley, CEO of Vanguard, has defended the company’s decision to withdraw the world’s second-largest asset manager from a global alliance to address climate change, stating that the “group’s voice was being drowned out”. In December 2022, Vanguard withdrew from the “Net Zero Asset Managers” initiative, a coalition of 301 asset managers committed to reducing greenhouse gas emissions. “Over time we felt our voice was being drowned out or confused,” Tim Buckley said in an interview with the Financial Times. Buckley added that Vanguard’s approach to managing climate risks, focused primarily on disclosure and corporate transparency criteria, “has not changed”. “We don’t believe we should dictate company strategy,” he said in his first public speech on the decision. “It would be presumptuous to assume we know the right strategy for the thousands of companies in which Vanguard invests. We just want to ensure that risks are appropriately disclosed and that every company adheres to the rules.” The decision to withdraw from the coalition has angered environmental activists already upset about the investment firm’s refusal to exclude new investments in fossil fuels. Activists argue that Vanguard should use its influence to push companies to accelerate the decarbonization of their activities, while Republican politicians in the United States accuse it of not supporting the fossil fuel industry. A very difficult choice to make indeed. Buckley, however, stated that Vanguard “does not engage in politics.” “Politicians and regulators play a central role in defining the rules of the game to achieve a fair transition to a low-carbon economy,” he said when asked about the growing politicization of ESG investments. The CEO of Vanguard also warned investors not to expect higher returns by investing in ESG funds and alternative assets, two of the fastest-growing parts of the asset management industry, compared to the indices promoted by his company. “We cannot claim that ESG investing is better in terms of performance than index-based investing,” Buckley said. “Our research indicates that ESG investing has no advantage over index-based investing.” Does Vanguard’s policy remain reluctant to change towards sustainable investments? Judging by the numbers, it would seem so: Vanguard has over 30 million clients worldwide and has built a business with $7.2 trillion in assets under management by promoting low-cost tracker funds that follow an index like the S&P 500 or the FTSE 100. It’s worth noting that Vanguard only sells 28 sustainable funds with a total AUM of $33.9 billion… Numbers very far from rival BlackRock, which sells 282 sustainable funds capitalized at $270 billion. Vanguard’s decision to withdraw from the initiative and the company CEO’s comments raise many questions. For example, in a world increasingly concerned about climate change, what are the responsibilities of large investors in promoting environmental sustainability? And if investing in ESG funds does not necessarily guarantee better returns, why are more and more investors turning to such funds? Ultimately, these questions highlight the complex balance between profit and sustainability that major investors like Vanguard must confront, and how this balance could evolve in the future.
Sources: Financial Times