Vanguard’s withdrawal from Net Zero endangers all of us

In December, Vanguard, the world’s second-largest asset manager, announced that it would withdraw from the Net Zero Asset Managers initiative, a largely symbolic pledge by asset managers to take climate change seriously by replacing fossil fuels with energy sources less likely to contribute to climate change.

The implications of Vanguard’s retreat from this climate commitment should alarm both investors and anyone who lives on this planet.

Investors know that climate change is bringing disruption and instability to the world’s economy and to its ecosystems. Navigating this developing storm will require a clear moral compass and visionary leadership at every level. Because Vanguard manages about $7 trillion of its customers’ assets, the company’s approach to managing climate risk will shape the direction of markets.

Net Zero has no enforced deadlines for substantive action and no accountability. Vanguard’s follow-through has been minimal.

Yet it is precisely because Net Zero committed Vanguard to do so little that we should all be alarmed by how publicly Vanguard leadership wanted to abandon it. When 13 pro-fossil fuel states announced they would petition the Federal Energy Regulatory Commission for Vanguard to be banned from buying utility stocks, Vanguard took only days to announce it would change course. But turning back from a commitment to address climate change will not make climate risk disappear. It just signals that Vanguard lacks a moral compass in the face of the largest threat to investment value in history.

“Vanguard lacks a moral compass in the face of the largest threat to investment value in history.”

The petitioning attorneys general, representing the 13 states, object to Vanguard’s stated support for investors to have access to information about the climate risks of companies as they make their investments. The only way to responsibly manage risk is to measure it. Some conservative advocates of the free market are apparently so disturbed by the thought of investors having that information that they are launching a national political battle to prevent companies from being transparent to investors about the risks associated with climate change.

Vanguard customers like me need to speak out against Vanguard’s rush to abandon its ostensible defense of transparency. It’s hard to trust a company that won’t stand by such a fundamental principle.

Measuring climate risk is not merely a matter of transparency owed to investors, it’s also a matter of fiduciary responsibility. Without drastic action occurring on climate change, Vanguard stands to lose an estimated $3 trillion of investors’ money to climate change impacts by 2050. Facing that future, Vanguard continues to be one of the world’s biggest investors in the very fossil fuels that are hastening the massive destruction of its customers’ wealth, much of it retirement savings like mine.

The majority of the public and investors want action on climate change, and investors depend on asset managers to protect their long-term interests, not to invest in destroying them. Yet Vanguard dithers and maintains inaccurately that the nature of passive index funds prevents it from changing its investments. As several analysts have pointed out, Vanguard can, in fact, make changes to its index fund investments. Instead, it continues to keep its customers’ assets invested in long-term wealth destruction via climate change.

» READ MORE: Vanguard invests in companies that pollute the Delaware Valley

Far more than transparency is needed. Last year, the Swiss Re Institute calculated that, on our current climate trajectory, the global economy would likely shrink 10% by 2050. A choice to proceed under full sail into this looming disaster carries huge consequences for those of us who are Vanguard customers, and for those of us who are not. At a bare minimum, Vanguard ought to prioritize minimizing climate change instead of increasing future losses by ignoring it.

We know the true bottom-line return on investing in fossil fuels will be catastrophic human and ecological suffering, and that the burden will — and is already — falling disproportionately on those who already bear the brunt of inequity and injustice.

Climate change will bring economic instability, climate instability, and political instability. It’s hard to argue that that’s a good risk, financially or morally. Vanguard’s failure to see the risks for what they are and chart a clear course endangers all of us.

Jonathan Ogle is a board member of the Earth Quaker Action Team (EQAT), a Vanguard customer, and a local high school teacher.