Vanguard defends decision to quit Net Zero Asset Managers - reports

Vanguard exited a group of asset managers that had come together to address climate change because it was not being listened to, its CEO has claimed, as he warned about ESG-focused returns.

The world's second largest asset manager resigned from the Net Zero Asset Managers initiative in December but stated it is committed to lowering greenhouse gas emissions.

Speaking to the FT, Vanguard chief executive Tim Buckley said the decision to leave came because "we felt that our voice was being drowned out or confused". 

Buckley said Vanguard's position is to not "dictate company strategy" of the companies it invests in, describing such action as "hubris".

He added: "We just want to make sure that risks are being appropriately disclosed and that every company is playing by the rules."

The American index fund investing giant, which has 30 million clients worldwide and $7.2trn in assets under management, has previously refused to ban new investments in fossil fuels from its funds.

Buckley said it was for "politicians and regulators…to set the ground rules to achieve a just transition to a lower carbon economy".

The Vanguard boss also disparaged the returns from ESG focused funds, as well as alternative assets, telling investors not to expect better returns over the trackers it mainly offers.

Buckley said: "We cannot state that [ESG] investing is better performance wise than broad index-based investing."

Vanguard sells just 28 sustainable funds with global assets of $33.9bn. That is well behind its closest rival BlackRock, which has a far bigger range of 282 sustainable funds with assets of $270bn, according to data provider Morningstar.

Buckley said the firm's ESG funds that exclude certain companies, "allow investors to express their values and preferences" but this "has to be an individual investor's choice".

He also warned alternative strategies, such as private equity and private credit do not "automatically" improve returns, and are "not a panacea to the challenges facing investors". 

Buckley's focus is forcing more price competition in the financial advice market to attract more clients into Vanguard's advisory business, with a target of 1 million clients by the end of 2025. 

The group currently provides advice to about 650,000 retail clients that together account for $350bn in assets.