The latest developments in the environmental, social and governance-driven investments and banking space.

US asset management titan Vanguard, overseeing more than $8 trillion in client assets, is leaving the world’s largest climate-finance alliance, seen as a blow to attempts to use investment muscle to force a move away from fossil fuels.

Bloomberg (December 7) and other media quoted the firm as saying that withdrawing from the Net Zero Asset Managers initiative, which is a sub-unit of the Glasgow Financial Alliance for Net Zero, “will help provide the clarity our investors desire” about everything from the role of index funds to financial risks in the context of climate change.

The decision comes at a time when energy prices have rocketed because of Russia’s invasion of Ukraine, post-pandemic supply chain disruptions, and the consequences of countries trying to move towards more renewable energy sources and cutting back on fossil fuel extraction and processing. By excluding fossil fuel energy firms from portfolios, asset managers have allegedly sacrificed returns at a time when markets have also been under pressure. Large US asset managers such as BlackRock, which have been prominent advocates of ESG investing, have been subjected to legal challenges in the US. 

Vanguard indicated that its decision rested on a desire to maintain the freedom not to restrict its investment options, the Bloomberg report said. Initiatives such as the Net Zero Asset Managers Initiative “can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms,” Vanguard is quoted as having said. “That has been the case in this instance, particularly regarding the applicability of net-zero approaches to the broadly diversified index funds favoured by many Vanguard investors.”

Republican lawmakers in Congress say they intend to criticize firms for anti-oil policies. House Republicans are set to hold congressional hearings on the subject, while a number of anti-ESG bills are due to be brought forward in the US.