New York City comptroller slams Vanguard over NZAM withdrawal

Asset management giant draws criticism for decision to leave GFANZ as House Republicans request CA100+ documents from Ceres and CalPERS.

The New York City comptroller has called Vanguard’s decision to pull out of the Net Zero Asset Managers Initiative (NZAM) a “misguided about-face”.

In a statement released on Wednesday afternoon, Vanguard said its membership of NZAM had resulted in “confusion about the views of individual investment firms… particularly regarding the applicability of net-zero approaches to the broadly diversified index funds favoured by many Vanguard investors”.

The manager added that, after a “considerable” period of review, it had decided to withdraw from the initiative to make clear that it “speaks independently on matters of importance to our investors”. However, it said that the change in membership status would not affect its commitment to helping investors navigate climate risk.

In response, New York City comptroller Brad Lander told Responsible Investor that the decision was “a misguided about-face at a time when financial institutions need to be taking a strong, collective approach to addressing financial risks from climate change”.

Reducing emissions in line with the Paris Agreement is “non-negotiable” for managers who are serious about the financial risks of climate change, he continued. Although New York City is not a direct client of Vanguard, Lander said that by “shielding itself from accountability”, the asset managers “thwarts the opportunity to meet this urgent moment in the best interests of their clients”.

Vanguard had not responded to a request for comment on Lander’s statement at the time of publication.

Earlier this year, two pension funds – Australia’s Cbus Super and Austria’s Bundespensionskasse – left the Net Zero Asset Owners Initiative and Paris-aligned Asset Owners Initiative, respectively, and consultant Meketa dropped out of the Net Zero Investment Consultants Initiative. However, Vanguard is the first major financial institution to quit one of the net zero alliances.

Lander is not the only public official to express disappointment.

Dave Wallack, executive director of For the Long Term (FTLT), a non-profit network for state treasurers, told RI that its members would be reaching out to Vanguard.

Wallack said there is “disappointment” with Vanguard’s decision.  “They will certainly hear about that directly from fiscal officers in our network and probably from many other clients,” he said. “I believe that they will be disappointed with the long-term consequences of their decision.”

RI understands that NZAM is not expecting any further imminent departures, that both BlackRock and State Street Global Advisers remain members of NZAM, and that BlackRock is not planning an exit in the short term. Spokespeople for both asset managers declined to comment on their long-term commitment to the initiative.

Kirsten Snow Spalding, vice-president of the Ceres investor network, said on behalf of NZAM that the initiative “regrets” Vanguard departing. Spalding said it was unfortunate that political pressure was attempting to block companies from effectively managing risks in line with fiduciary duty, but that the initiative wished Vanguard well in its “journey to integrate climate change and sustainability risks into all that they do”.

Wallack has previously said that treasurers were communicating with banks and asset managers about anti-ESG legislation, and the plan was to do this more as a group.

He said his group has engaged dozens of asset managers and individual treasurers have engaged many more – “and we are just getting started”.

House of cards?

Also this week, Republican representatives took one of the first steps by federal legislators in the fight against ESG, as a series of US House members who sit on the Judiciary Committee sent letters to CalPERS and Ceres asking for documents relating to their involvement in Climate Action 100+.

The letter, sent by Ohio’s Jim Jordan and signed by five other congressmen, asks Ceres CEO Mindy Lubber and CalPERS managing investment director for global equity Simiso Nzima to provide documents on a series of topics relating to CA100+.

The letter warns that companies working together to advance ESG goals or “punish disfavoured views or industries” may violate antitrust laws, and says that “ESG is merely partisan politics masquerading as responsible corporate governance”.

It asks Ceres and CalPERS to produce all documents from 2016 to the present day relating to the initiative’s engagement with members, guidance on company engagements, the initiative’s recruitment efforts, internal discussions on engagement strategies, the founding of CA100+, and communications with or from proxy advisory firms.

The final request names ISS and Glass Lewis, and also requests communications with other financial firms including PayPal on ESG.

Ceres and CalPERS have been given until 5pm on 20 December to produce the documents. Jordan is expected to become chair of the powerful Judiciary Committee in January, and has already laid plans for a series of investigations into Biden policies and public bodies.

A spokesperson for CalPERS said it was reviewing the letter, and pointed to comments made by CEO Marcie Frost at November’s board meeting, where she noted that the campaign in the midterm elections had “mischaracterised” ESG, with “falsehoods” about ESG risk analysis spreading widely.

Ceres and CA100+ had not responded to a request for comment at the time of publication.