Vanguard Quits Key Climate Initiative—Will it Quit Climate Action Too?

Over the years, Treehugger has covered thousands of bold corporate announcements about climate action. We’ve seen tech giants like Apple go all-in on 100% renewable energy. We’ve seen airlines announce carbon offsetting efforts and then, in the case of EasyJet at least, back off from those efforts in favor of actual emissions cuts. And we’ve seen fast food companies taking steps to reduce the amount of meat in their products. 

The challenge with covering announcements like these are numerous. It’s important to ask, for example, whether what’s being promised actually adds up to real, meaningful action. (“Emissions intensity reductions,” for example, are an entirely different thing to actual emissions cuts.) And just as important is the question of whether a company will actually stay the course. 

Airlines, for example, have notoriously missed all but one of the climate targets they’ve been announcing with much fanfare since the turn of the millennium. And yet it’s rare to see coverage of new sustainable aviation fuel initiatives or experimental hydrogen-fueled planes that take into account the industry’s poor track record when evaluating its promises for the future. 

I was thinking about this issue when I heard that Vanguard—a company with whom I have a retirement account—was withdrawing from the Net Zero Asset Managers Initiative (NZAM) having only signed up back in 2021. In their announcement about the move, Vanguard frames their decision as being about retaining autonomy and providing clarity to investors about who is calling the shots: 

Such industry initiatives can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms. That has been the case in this instance, particularly regarding the applicability of net zero approaches to the broadly diversified index funds favored by many Vanguard investors. Therefore, after a considerable period of review, 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.

Now, Vanguard is careful to emphasize that they still see climate change as a threat to investors and that they will continue to work with investors to manage climate risk, and to engage with companies to “understand how they address material risks, including climate risk, in the interests of long-term investors.”

And yet it’s hard not to see this shift in strategy within a broader push, in the U.S. at least, to undermine so-called ESG (environmental, social, and corporate governance) investing, with Republicans decrying such efforts as "woke capitalism" and vowing to reassert more restrictive ideas of shareholder primacy as being solely about short-term financial returns.  

As someone who works in corporate America for my day job, and who has helped my employer to sign on to several important climate initiatives, I am very aware that collective efforts like NZAM can constrain a company’s ability to make decisions independently. And while that’s as much of a feature as it is a bug—helping like-minded businesses to navigate a course together—there are instances where specific initiatives are no longer a good fit for some of their members. And Vanguard specifically pointed to the challenge of incorporating NZAMI’s focus on investor engagement, when 80% of client's assets are invested in passive index funds, which minimizes fund managers' influence over the companies they invest in.

So we should be careful about assuming an exit from a specific initiative means an abandonment or a watering down of actual climate goals. And yet, we certainly can’t discount that possibility either. Certainly, in its article about the announcement ESG Today quoted several top Republicans crowing about the move as a victory, while NZAMI founders Ceres pointed to political pressure that was “attempting to block companies from effectively managing risks—a crucial part of their fiduciary duty.”

Either way, as Vanguard quits an initiative that it clearly thought was a good fit less than two years ago, it is incumbent on all of us—especially customers like myself—to continue to demand robust and ambitious climate action, regardless of the initiatives they choose to partner with. Not only is that the right, just thing to do. It’s also the fiscally responsible thing to do. Because while we can argue all day about the best way to get there, we know for a fact that the only way to be sure of a safe retirement for most of us is to make sure we have a livable climate in which to enjoy it. 

And, more broadly, this is a good reminder for all of us: Let’s pay at least as much attention when companies renege on or revise their commitments, as when they first announced them.