ImpactAlpha, April 3 – Tim Buckley is not a household name like Larry Fink. That may change, as shareholder activists take their climate action campaigns to Vanguard, the second largest asset manager after Fink’s BlackRock.
As Vanguard’s CEO since 2018, Buckley has stayed out of the limelight unlike his high-profile rival. Starting today, an environmental coalition will begin airing a cable TV ad highlighting the $8 trillion asset manager’s role in fueling the climate crisis. The spot’s target market: Chester County, Pa., where Vanguard is headquartered and many of its 17,000 employees live.
The 30-second spot featuring a couple and their grandchild starts off innocuously enough. “Investing with Vanguard helped us seed our retirement dreams,” the woman says. The mood quickly sours. “Now that future is threatened by climate change.”
The ad is part of a broader global campaign by Vanguard S.O.S., a coalition of environmental groups and financial professionals.
“When you save with Vanguard,” a voice over intones as smoke billows in the distance, “you’re an owner of a catastrophic future.”
The ad campaign is the latest salvo fired by climate activists at the world’s No. 2 asset manager. At issue: Vanguard’s lagging performance on climate action.
In December, Vanguard pulled out of the Net Zero Asset Managers alliance, a group committed to zeroing out emissions. The move came a week after a group of Republican-led states opposed the firm’s application to the Federal Energy Regulatory Commission to increase its ownership of publicly traded utilities. The states, led by Utah, argued that Vanguard’s “environmental activism” would raise costs for consumers.
“Such industry initiatives can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms,” Vanguard said in the note announcing its withdrawal from NZAM. The firm cited “the applicability of net zero approaches to the broadly diversified index funds favored by many Vanguard investors.” Some 80% of the firm’s customers – predominantly individual investors – have their money in index funds.
That “universal ownership” makes Vanguard one of the world’s largest fossil fuel investors. It has $300 billion in fossil fuels investments, one-third of which are in coal companies. It has also underwritten $7.6 billion in bonds for coal companies. Just 5% of its assets under management are in line with 2050 net zero targets. Think tank Universal Owner forecast that the climate damage resulting from Vanguard’s investments in tar sands and other fossil fuels could lead to $3 trillion in losses for its U.S. equities holdings by 2050.
Vanguard’s participation in the NZAM initiative set expectations for it to align its portfolio with net zero aims and reduce its fossil fuel holdings.
Vanguard said it is still committed to addressing climate risk, and pointed to its engagement with polluting companies. But the firm’s voting record on climate issues is near rock-bottom, even compared to the mostly accommodating asset managers that are its peers. Vanguard’s proxy voting policy rests on disclosure, not climate performance, a low bar that led Vanguard to support 100% of directors at climate-critical corporations last year, according to Majority Action’s Climate In the Boardroom report.
In contrast, asset managers such as PIMCO, Amundi Asset Management and Legal & General Investment Management voted against one-fifth to more than one-third of directors at companies deemed “climate critical.”
“Minimizing the risk that climate change poses to individual firms is not the same as minimizing the risk which individual firms pose to the climate,” argues Universal Ownership.
Close to home
In early March, some 1,400 Vanguard customers sent a letter to the firm’s chief counsel charging Vanguard with breaching its fiduciary duties by not managing climate risks. The letter said Vanguard put its own financial interests ahead of its customers’ by pulling out of the NZAM alliance. The letter, drafted by Sierra Club Foundation’s Paul Rissman, calls for the firm to put forth a concrete plan for addressing climate risk.
“I expect Vanguard, as my fiduciary, to exercise its duties of loyalty and care in its decisions,” the letter says. “Unfortunately, Vanguard is currently insufficiently managing the risk to my investment from climate change, which potentially violates both of these fiduciary duties.”
Shareholder activists are increasingly taking their case to financial firms’ employees, customers and communities.
“Vanguard has known for years that climate change poses a substantial risk to the economy at large and to their own clients’ portfolios, yet the company has done next to nothing to mitigate the risk to safeguard its clients’ long term investments and take responsibility for continuing to fuel the climate crisis through its investments,’” said Roberta Giordano of the Vanguard S.O.S. campaign.
“We’re airing this ad where Vanguard’s executives and employees work and live so they are reminded first-hand of the consequences of their decisions.”