Cooling towers next to a coal-fired power station in Mpumalanga, South Africa
Cooling towers near a coal-fired power plant in Mpumalanga (South Africa) (c/ Waldo Swiegers/Bloomberg

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Vanguard is the world’s second largest asset manager. It has refused to stop investing in fossil fuel projects or end its support for oil, gas and coal production.

Chief executive Tim Buckley said the group, which manages $8.1tn for more than 30mn investors and is the largest investor in coal companies globally, was determined to safeguard its clients from climate risks but this would not require it to end new commitments to fossil fuel industries.

“Vanguard is not a company’s strategic advisor. We work with companies to discuss climate change and ask them to set goals. We also ask them to report on how they are reducing climate risks. Buckley spoke to the Financial Times in an interview. “This transparency will ensure that climate risk are priced appropriately by market,” he said.

Companies with a high carbon footprint could play a crucial role in the transition towards a low-carbon future.

” Our duty is to maximize long-term total returns. Climate change is a risk, but it is only one aspect of an investment decision. Buckley stated that there is already a pension crisis and that climate change should not make it worse.

The financial implications of climate change have hit the headlines recently after a senior HSBC executive accused central bankers and policymakers of overstating the risks of global warming.

Buckley’s comments were made ahead of the publication of Vanguard’s first progress report towards the goal of reaching net zero carbon emissions across its investment portfolios by 2050.

Just $290bn, or 17 per cent, of Vanguard’s $1.7tn in actively managed assets are aligned with net zero by 2050. It expects around half of the $290bn to be net zero aligned by 2030, the agreed interim target date set for members of the Net Zero Asset Managers initiative, a coalition of 235 large investors that together manage about $57.5tn. Vanguard has decided not to attach interim net zero goals to passive index-tracking funds, which make up the bulk of its assets. According to Vanguard, net zero targets weren’t built into the original objectives for these funds. US asset managers have a fiduciary obligation to maximize returns. Adding goals that are not included in a prospectus could expose them for legal action. Active managers have more flexibility in deciding what factors to consider when choosing which companies to purchase.

Vanguard also believes achieving a 50 per cent reduction in emissions in these passive funds by 2030 will be very difficult without substantial action by the companies themselves and much more clarity on how government policy might evolve.

“More than 70 per cent of Vanguard’s index equity assets are invested in companies with publicly stated emission reduction goals. Buckley stated that more than $1tn of these assets are invested in companies with publicly committed net zero targets.

Environmental campaigners argue that none of the world’s three largest asset managers — BlackRock, Vanguard and State Street — have policies that will achieve absolute reductions in carbon emissions by the end of the decade.

Vanguard ranked last of 25 large asset managers in a fossil fuel and climate change evaluation published by Reclaim Finance and Urgewald, two environmental campaign groups, in April. Asset managers must send clearer signals for the fossil fuel industry. Any investor committed to achieving carbon neutrality by 2050 must immediately cease all investments in companies developing new oil and gas supply projects,” said Lara Cuvelier from Reclaim Finance.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here. Are you interested in the FT’s commitments to environmental sustainability? Find out more about our science-based targets here

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