(TheLibertyRevolution.com)- The decision by Vanguard Group to leave a significant climate change alliance last month highlights how 401(k) and other retail investors are much less concerned with
Environmental, Social, and Governance (ESG) than institutional investors.
According to a statement made last month, the Net Zero Asset Managers (NZAM) project, whose participants pledge to have their investment portfolios emission-neutral by 2050, will no longer include Vanguard. It said that its index funds, which primarily draw in individual investors, account for 80% of its close to $8 trillion in assets.
Most of these funds do not take carbon emissions or environmental, social, and governance (ESG) issues into account, and they typically do not have the freedom to include or omit companies beyond a pre-set mandate.
Vanguard claimed it was doing so in response to a request from its clients for “clarity” and to make its independence obvious, but it did not specify what had changed since 2021 when it joined NZAM.
The two major rivals of Vanguard, BlackRock Inc. and State Street Corp.’s asset management unit, rely heavily on institutional investors like foundations and pension funds. BlackRock and State Street both remained loyal to NZAM.
According to information from Morningstar Direct and company disclosures, mutual funds and exchange-traded funds, the popular investment vehicles with retail investors that include many index funds, account for roughly 41% and 30% of assets at BlackRock and State Street, respectively. That percentage at Vanguard is 88%.
According to Todd Rosenbluth, head of research at ETF data and analytics company VettaFi, institutional investors are increasing their attention to climate change and other ESG goals in response to pressure from clients, regulators, and investment activists.
He remarked, “An investor base that cares more about ESG is attracted to BlackRock and State Street.”
According to Rosenbluth and other industry observers, many retail investors are interested in climate change but give them less weight when establishing retirement portfolios.
Only 9% of respondents in a FINRA study reported having ESG assets, compared to 57% who said they do. A Republican effort to limit Vanguard’s ability to invest in public utilities could be affected by its exit from NZAM.
