VanguardMar 8 2023

Vanguard 'failing' investors on climate change

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Vanguard 'failing' investors on climate change
Vanguard has been embroiled in a row over how it should protect investors' money from climate change (Dreamstime)
BySally Hickey

Vanguard is putting investors’ money at risk by failing to manage climate change risk, a group of investors has said.

Paul Rissman, co-founder of Rights CoLab and a former executive at AllianceBernstein, has written to Vanguard’s general counsel, Anne Robinson, laying out a number of demands to the money manager.

“As a Vanguard investor, I am writing to express serious concerns about how the long-term risk of climate change affects my portfolio value – and Vanguard’s failure to sufficiently manage these risks,” Rissman said. 

The allegations made against Vanguard, which manages $8tn (£6.7tn) worldwide, include its alleged failure to take full advantage of proxy voting in the companies in which it invests on behalf of clients.

These distractions could result in additional performance issues over timePaul Rissman, Rights CoLab

Rissman, representing the company’s investors, criticised Vanguard’s decision to pull out of the Net Zero Asset Managers Initiative, saying the company put its own financial interests ahead of those of its investors by doing so. 

He quotes a recent study by Vanguard which notes that climate change represents a profound, fundamental risk to investors’ long-term success.

“Vanguard is currently insufficiently managing the risk to my investment from climate change, which potentially violates [its] fiduciary duties,” he said.

Rissman also referenced a Share Action report which showed Vanguard had one of the lowest engagement rates in voting for shareholder-sponsored resolutions.

He said this “egregious neglect” of the risk climate change has resulted in negative publicity for the company, as well as the potential for litigation. 

“These distractions could result in additional performance issues over time,” he said.

Rissman asked Vanguard to adopt stewardship guidelines that prioritise decarbonisation and aim to limit global warming to 1.5 degrees celsius, and supporting activities which mitigate climate-relates risks to businesses.

Vanguard should also communicate the best-in-class industry standards and outline the proxy voting consequences for companies that fail to comply with these.

Finally, Rissman said Vanguard should adopt and apply rigorous climate change risk criteria and analysis across its entire portfolio.

“[Vanguard should] expand offerings that are 1.5°C-aligned and provide investment products that are on a zero emissions pathway,” he said.

A spokesperson for Vanguard said: “As an investor-owned asset manager, Vanguard is singularly focused on maximizing our clients' returns and giving them the best chance for investment success. 

“As we’ve long maintained, we consider climate change to be a material risk to companies and their shareholders, and are committed to continuing to help our investors navigate its impact on their long-term financial success.”

Political leanings

In response to the criticism of its exit from the Net Zero Asset Managers’ Initiative, Vanguard’s chief executive, Tim Buckley, told the Financial Times last month that the company’s voice was being drowned out in the group. 

Environmental campaigners were enraged by the decision, which followed the company refusing to rule out future investment in fossil fuels.

The argument has reached political spheres in the US, with officials in Republican-led states launching investigations into BlackRock and State Street over their proxy voting.