Vanguard is not an active fund manager in that it doesn’t take positions against the market consensus, as defined by whatever index it chooses to follow.
It is an owner of physical assets within those indices and therefore has voting rights, what Vanguard thinks matters in the boardrooms of the companies it invests in.
So when Vanguard speaks on environmental, societal and governance issues, the world listens, for Vanguard is one of the largest asset owners there is.
When Tim Buckley, Vanguard’s CEO said in a recent interview, we should listen
“Our research indicates that ESG investing does not have any advantage over broad-based investing,”
Buckley is challenging the received wisdom of the past 20 years and his comments came after Vanguard withdrew from the $59 trillion Net Zero Asset Managers initiative, the largest association of financial institutions dedicated to net-zero investing and one that is part of the UN Sponsored Glasgow Financial Alliance for Net Zero (GFANZ).
The comments have been picked up by the energy lobby who point to 2022 where adjusting portfolios to exclude companies profiting from fossil fuels meant not just losing out on the surge in their prices, but over-weighting tech stocks that under- performed. This argument works in the short-term and we might extend it to go overweight in arms manufacturers and indeed economies such as Russia that pay little heed to good governance as defined by standard western measures.
Those who agree with Vanguard’s position point out that although GFANZ speaks for £150 trillion of the world’s economy, it doesn’t speak for all of it. the principle of the waterbed is that when you press hard on one side, you put pressure on the other and in economic terms you offer an opportunity for economies (and fund managers) outside the Net -zero asset managers agreement, to exploit the positions of those who actively pursue net-zero positions. Indeed their argument may well lead to some investors moving to Vanguard to capture the upside of the arbitrage.
And supporters of Buckley’s comments question whether the prevailing zeitgeist for better governance, a more sustainable approach to managing the factors that matter to the climate and the impact of socially responsible investment – will be sustained. They use words such as “clairvoyance” and “speculation” to characterise the positions adopted by the United Nation’s GFANZ, arguing that it may be no more than a fad to be overtaken by the next big threat to the planet or opportunity presented by a yet unknown development.
And finally they argue that with the chances of the net zero commitments to carbon neutrality by 2050 being met , the climate change lobby is fighting a losing battle and – to use Buckley’s words
“it would be hubris to suppose we know the right strategy for the thousands of companies Vanguard invests in”
The position adopted by Vanguard is clear, its apologists have made their arguments clear. It is also clear that those who invest with Vanguard have the choice of whether to continue to do so. Those who are considering using Vanguard have a clear differentiator for their decision making.
Vanguard may call itself a passive manager, but it is an influential one and the comments of its CEO late last year are now being cited by lobbyists for companies that are being denied capital and forced to change their strategies – because of their “dirty” positions on carbon emissions through energy , the destruction of natural capital and the style of governance that leads to these positions being maintained and even promoted,
My thoughts are that Vanguard is acting irresponsibly and I am pleased that I have none of my money under their management. What about you?