Vanguard is the world’s second-largest mutual and exchange-traded fund manager. It pioneered the concept of index funds and now manages trillions of investment dollars.
As insinuated in its name, the firm has always been in the vanguard, the frontline, in the financial world, exploring new ways to improve opportunities for investors.
The innovative firm is back in the lead and in a good way, and not everyone is happy about it.
Jumping on the Wrong Wagon
In late 2020, all the big mutual fund managers hopped on the climate-change bandwagon by forming an alliance called Net Zero Asset Managers (NZAM). The group was launched to support net-zero emissions by 2050 by favoring climate-friendly investments. At the core of this alliance were the Big Three fund managers: BlackRock, Vanguard and State Street. Vanguard presently manages $8.1 trillion in assets.
At the time, joining NZAM was the trendy thing to do. However, things have soured. Many now criticize programs like NZAM as going beyond climate concerns by embracing the whole Environmental, Social and Governance (ESG) agenda. They accuse corporate management of caving in to unreasonable demands that have nothing to do with better business. Indeed, ESG radicals insist that fund managers defund energy and other vital industries, support woke causes and foster boardroom inclusivity. This is financial suicide.
The backlash from investors has been so great that some finance firms are reconsidering their green investment strategies. Major investors, including important government pension fund managers, have withdrawn billions of dollars from ESG-pushing firms, especially the very “woke” BlackRock.
Vanguard Leads the Way Off
While quick to jump on the bandwagon, Vanguard is now leading the way out by announcing it is formally leaving the NZAM alliance. It claims the program lacks “clarity” and is confusing to its investors.
“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,” Vanguard explained in a statement on its website.
The announcement further stated, “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.”
The Real Meaning Behind the Move
No one has any illusion as to what these carefully-crafted statements mean. Vanguard wants out of the Green straitjacket. Investors are not only “confused” by the Green nonsense, but they are angry and putting pressure on the fund’s management to do something about it.
Investors cannot understand why outside ideological forces should dictate how their money is used. The purpose of managed funds is not to cater to agendas but to help improve profits for their customers through wise investment. Fund managers need the freedom to decide which industries are best for their clients—and in this case, best for the nation.
A Major Blow to the Green Future
Leftist groups also have no illusion about what the Vanguard announcement means. The firm is rejecting their agenda. The exit of one of the Big Three is a major blow to the Green effort. The move took out one of the legs of the three-legged stool of America’s three biggest fund managers. Indeed, Vanguard’s exit is the most significant defection to date amid a growing reaction by conservatives against banks and asset managers that target vital U.S. industries.
For the Green lobby, the move could be catastrophic. Not only are trillions of dollars at stake, but, more importantly, the straightjacket is now ripped. Vanguard’s brave position at the forefront can encourage many other firms to jettison the ESG ideology now being shoved down their throats.
The Green lobby is feeling the pain. Former U.S. Vice President Al Gore slammed Vanguard’s decision to leave ZDAM, calling the move “extremely disappointing” and out of step with the times. Mr. Gore, who chairs the eco-friendly Generation Investment Management firm, said, “It’s an irresponsible and shortsighted decision.”
Green activists also acknowledge the pressure of anti-ESG protesters. They accuse Vanguard of “kowtowing” to ‘anti-woke’ sentiment.
Never Satisfied Radicals Change the Narrative
The left is reacting to the exit with its usual smear tactics. Rather than address Vanguard’s legitimate concerns, many activists immediately changed the narrative by attacking the firm’s sincerity. They are even claiming Vanguard was never really on board anyway.
“Vanguard has long lagged even its own industry peers in mitigating climate risks, but at least it claimed to be moving in the right direction,” said Casey Harrell, a senior strategist of Vanguard S.O.S.
“Now, with its decision to walk away from NZAM, the firm is dropping any pretext,” Harrell stated. “Vanguard is bowing to right-wing political pressure instead of serving its customers’ best interests. It’s now clear that investors who are concerned about climate risk should take their investments elsewhere.”
Bloomberg reports that Lara Cuvelier, an activist with Reclaim Finance, considered Vanguard’s participation in NZAM to date as much more of a publicity stunt than pragmatic action.
Eco-activists are never satisfied with any effort of those who sign on to their programs. They always demand more.
Even before Vanguard’s exit, NZAM officials are accused of failing to get its members to meet rigid eco-targets. The think tank Universal Over issued a scathing October report that said NZAM was “irrevocably flawed,” with members using inconsistent and vague methodologies. It reserved its harshest criticism for the Big Three asset managers—including the very ‘woke’ BlackRock.
No Illusions About Vanguard
Despite its courageous stand, no one should have any illusions that Vanguard has become an anti-woke crusader taking on the establishment. Gone are the days of Vanguard’s storied founder John Bogle who was unafraid to think outside the box and speak his mind.
Unfortunately, the roots of ESG are deep in corporate America. Vanguard still expresses its commitment to the climate agenda and the use of its eco-rhetoric. The firm’s statement reassured the public that it will still “track its progress independent of the alliance” by providing investors with the information and products to nudge the U.S. toward net zero emissions in the coming decades.
Thus, investors must keep up with their good pressure.
Three Lessons From the Exit
However, there are three lessons from the Vanguard exit. The first is that protests and pressure are effective. Even woke analysts have to admit it. Vanguard had the sense to listen to its customers, not eco-activists, and will be rewarded if it continues to do so.
The second lesson is never to trust leftist allies. They may applaud when getting companies to sign up on their bandwagons but will attack them when it suits their cause. The radical left will never be satisfied with concessions and will always demand much more.
Finally, never be afraid to take action when attacked. Unlike the remaining two of the Big Three, Vanguard got off the sinking ship in time. It dared to recognize that its best and natural position is in the vanguard, not the rearguard.
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