The world of woke capitalism was shaken with the announcement by Vanguard Group Inc. that it would withdraw from the world’s largest climate-finance alliance.
According to a statement from the company, Vanguard had joined the Net Zero Asset Managers initiative (NZAM) in 2021 with a goal of understanding the risk climate change poses to its clients’ investments.
These initiatives, according to the statement, “can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms.”
The NZAM initiative is a group of asset managers with $26 trillion in assets under management, committed to the goal of net zero greenhouse gas emissions by 2050 or sooner and supports investing that aligns with that mission.
That means, regardless of demand for fossil fuels or any impacts that come from eliminating the industry, it doesn’t do business with oil, gas and coal companies.
Not The End?
Top investors engaged in environment, social and governance (ESG) investing have faced increasing criticism from the public sector for pushing liberal progressive policies in the investing world as a means to shortcut the legislative process by representatives elected in a democratic process.
Alex Stevens, manager of policy and communications for the Institute for Energy Research, cautioned against reading Vanguard’s decision as the beginning of the end for ESG.
Public pressure likely played a role, Stevens told Cowboy State Daily, as asset managers are realizing that the “last thing most people want is their retirement fund pushing progressive politics down their throats,” and it was a step in the right direction.
However, there could be business motivations involved that are separate from the growing criticism of ESG, and the company remains a part of similar initiatives to that of NZAM, such as the UN Principles of Responsible Investing and the Sustainable Accounting Standards Board.
“Vanguard indicated that its decision to exit rested on a desire to maintain freedom when making investment decisions,” Stevens said.
‘Soulless’
Anson Frericks, co-founder and COO of Strive Asset Management, told Cowboy State Daily, that the company was becoming a “soulless organization.”
“They don’t know who they are. They tend to blow wherever the wind goes,” Frericks said.
Vanguard in its statement on the decision to leave NZAM expressed ongoing commitments to net zero, and it remains a member of Climate Action 100+, an initiative similar to that of NZAM.
“Earlier this year, they reported on the great progress they made towards their net zero commitment reductions. And then all of a sudden, when the winds are changing somewhat on ESG and ESG investing, they’re changing their tune,” Frericks said.
Tentative Decisions
It’s possible the company will be blown back another direction, as pro-ESG forces push it toward climate goals.
New York Comptroller told Responsible Investor that Vanguard’s decision to leave NZAM was a “misguided about-face.”
Whether the pro-ESG forces will regain the favor they once enjoyed is hard to say. There’s also been growing scrutiny as to whether or not ESG funds perform better than those free of political agendas, with some research finding they deliver worse returns for clients and with higher costs.
Frericks and his partners founded Strive Asset Management with the goal of serving clients without political agendas one way or another, which they believe would bring more value to those they serve. Last month, Strive passed $500 million in assets under management, and Frericks said their funds are doing really well. They expect to have a couple more funds next month.
Anti-ESG States
Last month, a group of Republican U.S. state treasurers with the State Financial Officers Foundation launched a campaign to push back against ESG with a campaign called “Our Money Our Values.”
In October, Louisiana’s treasurer promised to pull $794 million out of BlackRock Inc.’s funds, another vocal champion of ESG investing. Earlier this month, Florida’s chief financial officer said he’d pull $2 billion worth of its assets from the company, which represented the largest divestment over ESG so far.
Wyoming was an early critic of ESG when San Francisco-based Bank of the West vowed in 2018 it would no longer do business with companies associated with fossil fuel production. Then-treasurer Mark Gordon said he’d cut ties with the company.
Preparing To Fight
Since Republicans took the U.S. House in last month’s general election, the attacks on ESG from federal lawmakers, which have been growing over the past year, began to ramp up.
The GOP staff in the Committee on Banking, Housing and Urban Affairs produced a report providing details on how BlackRock and Vanguard — as well as the third of the “Big Three” asset managers, State Street — were using shareholder voting power to advance liberal politics, including diversity, equity and inclusion ideologies.
House Republicans are planning congressional hearings on the subject, and many states are considering anti-ESG bills.
