On Wednesday, one of the world’s three largest asset managers, Vanguard, announced it would end its membership in the Net Zero Asset Managers Initiative (Net Zero), which promotes ESG investing. The announcement comes about a week after Consumers’ Research and 13 state attorneys general asked the Federal Energy Regulatory Commission (FERC) to review Vanguard’s request to own energy company stocks.
Following the announcement, Will Hild, executive director of Consumers’ Research, tweeted, “Less than one week after I called for the Federal Energy Regulatory Commission (FERC) to revoke Vanguard’s authorization to purchase shares in publicly traded utility companies, they folded. Keep up the pressure, we’re winning.”
According to Hild, the motions to intervene asked FERC to prevent concentrations of power over the energy grid. Especially concentrations of power among firms that promote ESG investing. Consumers’ Research’s brief outlines the concern.
More alarming to Consumers’ Research—and hopefully to the Commission as well—is how the Big Three [Vanguard, BlackRock, and State Street Advisors] have used their combined market power to shape American energy policy.
In just the past few years, the Big Three have embarked on a full-scale engagement and proxy-voting strategy to force utility companies to comply with various decarbonization goals. For just one of many examples, all three companies are now dedicated members of the Net Zero Asset Managers initiative (“NZAM”).
As members of that organization, the Big Three have agreed to “accelerate the transition towards global net zero emissions” by “[i]mplement[ing] a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with [NZAM’s] ambition for all assets under management to achieve net zero emissions by 2050 or sooner.”
FERC’s mission is to ensure reliable, safe, secure, and economically efficient energy for American consumers at a reasonable cost. To invest in public utilities, Vanguard and other asset managers promise they will not control or manage their portfolio companies or interfere in their day-to-day activities, and that their continued and future investment does not affect electricity rates.
However, Net Zero’s Asset Managers Commitment signatories agree to an extensive list of actions and activities that mirror ESG investing strategies. The goal of the commitments is to accelerate the transition to net zero emissions. Vanguard agreed to work with clients on decarbonization goals, consistent with reaching net zero emissions by 2050 or sooner across all assets under management (AUM). AUM is the total market value of the investments that Vanguard manages on behalf of investors. In other words, it is what they buy with your money if you contribute to a pension or 401K that they manage.
Related: Working to Save the Energy Grid From ESG Investing
Vanguard also pledged to develop an interim target for the percentage of investment dollars that will be managed to align with attaining net zero emissions by 2050 or sooner. And, using other people’s money, they committed to increasing that percentage until 100% of AUM is achieved.
Asset management firms are supposed to be most concerned with their fiduciary responsibility to investors. Their job is to manage the funds they are given for the exclusive purpose of providing a return and paying plan expenses. This means they are required to run their plans solely in the interest of participants and beneficiaries, not activist third parties like Net Zero. Membership in groups like Net Zero interferes with those responsibilities and contradicts Vanguard’s assertion to the FERC that they do not actively manage their investments.
Hild’s motion further explained the risk to consumers and the energy grid.
Vanguard, along with asset managers BlackRock Inc. and State Street Corporation (“the Big Three”), own most of corporate America. Collectively, they hold the largest voting blocs for most of the S&P 500, and are the largest investors in public oil, gas, and coal companies, having a combined $300 billion fossil-fuel investment portfolio. This massive concentration of corporate ownership, including of voting securities, in public utilities gives the Big Three substantial control over the U.S. industry. That degree of industry concentration, on its own, is cause for the Commission to reconsider its past blanket authorizations.
Hild views Vanguard leaving Net Zero as a win for the organizations fighting ESG investing. “Vanguard’s departure from membership in the Net Zero Alliance proves what we’ve been saying from the beginning, this is a conspiracy against the consumer.”
Related: Florida Withdraws $2 Billion from BlackRock Over ESG Investing
He believes the pressure from the filings worked. “Soon after we filed to intervene in their authorization renewal before the FERC, Vanguard realized their entire business model could be at stake if they didn’t stop coordinating with other members to drive up energy costs.”
Hild added, “We’ve struck a serious blow to the anti-consumer ESG agenda, and we are going to keep fighting until these asset managers, and banks get back to fulfilling their fiduciary duties and stop playing politics with other people’s money.”
West Virginia State Treasurer Riley Moore agrees. As a state financial officer, Moore has withdrawn funds from financial firms that adopt ESG policies. In a statement regarding Vanguard’s announcement, he said, “This is tremendous news for American consumers and investors and demonstrates we are turning the tide against the woke radicals who are trying to impose their social and environmental agenda on our economy through coercive means.”
Moore continued, “Investment managers should act in the best interests of their customers and the maximization of their returns, not according to artificial restrictions drawn up by a cabal of global elites. Vanguard’s decision draws a line in the sand to say they will act in the best interests of their clients, and I hope other firms follow suit.”
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