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Despite Leaving Climate Group, Vanguard Adheres to Environmental, Social, Government (ESG) Dogma

Investment behemoth Vanguard may have decided recently to quit a net zero climate effort, but do not expect the Pennsylvania-based advisor group to walk away from all things environmental.

Economist Jerry Bowyer of Boston, Pennsylvania-based Bowyer Research says Vanguard has been quieter about the climate change political agenda than Blackrock, but Bowyer’s research shows Vanguard is “in many ways” a more consistent vote against fossil fuels.

“This political intrusion into finance violates the intention of the firm’s founder, John Bogle,” adds Bowyer. “The energy policy side may well violate Vanguard’s agreement with government regulatory officials to stop interfering with management decisions in this space.”

In short, Bowyer says Vanguard is supposed to be a money management firm, not an energy regulatory agency. The regulation of energy is what the Net Zero Asset Managers (NZAM) Initiative involves. In fact, the very commitment that managers agree to is an acknowledgment that “there is an urgent need to accelerate the transition towards global net zero emissions” and for asset managers to help deliver the goals of the Paris Agreement. In signing on to NZAM, organizations commit to supporting the goal of net zero greenhouse gas (GHG) emissions by 2050, in line with global efforts to limit warming to 1.5°C (‘net zero emissions by 2050 or sooner’).

“It also commits to support investing aligned with net zero emissions by 2050 or sooner,” says the commitment, which is available on

Vanguard, one of the world’s biggest mutual fund managers, announced its decision to quit the Net Zero Asset Managers (NZAM) Initiative on December 7. Vanguard officials said they wanted to provide the clarity that its investors desire about the role of index funds and about how they think about material risks, including climate-related risks. Vanguard also wants to make clear that the firm speaks independently on matters of importance to its investors.

Vanguard’s announcement comes as members of the State Financial Officers Foundation and attorneys general have been holding large asset aggregators such as Blackrock and Vanguard accountable for environmental, social, and government (ESG) policies. Had it not been for these efforts, Bowyer thinks Vanguard would still be in the Net Zero group.

“It’s a victory, but a partial one,” says Bowyer. “Vanguard has shown no indication that is changing its policies one iota, and in announcing this change, it reasserted its commitment to fighting global warming.”

Vanguard’s statement says climate change and the ongoing global response will have “far-reaching economic consequences” for companies, financial markets, and investors, presenting what Vanguard considers a clear example of a material and multifaceted financial risk. Vanguard adds this change in NZAM membership status will not affect its commitment to helping investors navigate the risks that climate change can pose to their long-term returns.

“We will continue to provide investors the information and products they need to make sound investment choices, including products designed to meet net-zero objectives,” Vanguard officials said. “We will continue to interact with companies held by Vanguard funds to understand how they address material risks, including climate risk, in the interests of long-term investors, and we will continue to publicly report on our efforts with respect to climate risk, grounded in our deep commitment to our investors and their financial well-being.”

If you ask Bowyer, the only change announced here is that Vanguard will speak with an independent voice in the future. However, that says nothing about whether the independent voice will be any different from its past voice. Bowyer also doubts that Attorney General turned Governor-elect Josh Shapiro (D-Pennsylvania) will in any serious way challenge Vanguard on climate change. Like Governor Tom Wolf, Bowyer considers Shapiro a reliable left-of-center voice who represents Philadelphia regional politics and not the pro-fossil fuel agenda of the rest of the state.

Professor Burton Hollifield with the Tepper School of Business at Carnegie Mellon University can see where Vanguard is coming from with this decision. Vanguard is owned by its funds, themselves which are owned by the fund investors. Therefore, Hollifield says Vanguard has a duty to produce high, long-term returns for their owners.

“Vanguard provides low-cost products to meet long term investment goals, offering many passive index products,” says Hollifield. “Their stated reason for withdrawing from the NZAM is that they want to provide clarity on their focus on how net-zero approaches can impact index products.”

Hollifield adds that long-term index returns reflect long-term risks faced by the economy as a whole. Meanwhile, Hollifield says climate change is an economy-wide risk. So, Vanguard has strong incentives to worry about climate risk for their funds. Pulling out of NZAM does not change that. Vanguard has strong incentives to work to manage long-term climate risks.

“That other investment funds remain in NZAM means that investors who decide to embrace the net-zero goals will still have access to competing products committed to that approach,” says Hollifield. “Competition may force Vanguard to change their approach in the future if the NZAM approach is the only way to deal with climate risks.”


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KRACUNAS: Now Is the Time to Help Kids Learn How to Take Stock in Their Future

For the kids of my generation, investing in our futures was as straightforward as a passbook savings account and slotting money from summer jobs into a piggy bank. Seeing our balances grow was satisfying and served us to a point. Young people today, however, need and deserve a much more in-depth entrée into finance and how it works. Some would suggest that now is the wrong time to introduce kids to the ups and downs of the stock market. I contend just the opposite.

It’s easy for adults to accept that teenagers know nothing at this stage of their financial lives. Of course, kids don’t have the life experiences adults have, but they are acutely aware of what’s happening around them and want the opportunity to live the good life. We have the ability and responsibility to help them learn from the past and change the dynamic regarding financial education. Let’s grab the bull by the horns before the opportunity passes us.

Teens need to be guided through making sound short-term and long-term decisions to navigate financially challenging times. The earlier young people develop and follow a strategy to achieve their retirement dreams, the more confident they will be in their success. 

Thankfully, I’m not the only one with this viewpoint. One of the most forward-thinking groups is Junior Achievement, which regularly conducts research among U.S. teens to understand their opinions and provides programs that help them lead financially secure lives.

One piece of research co-sponsored with Junior Achievement revealed that 94 percent of teens say they know some or not much about the stock market and believe the stock market is a somewhat risky way to make money quickly versus being a good long-term investment.

How can parents help? During road trips or even just sitting around the kitchen table, asking kids about brands, companies and individuals they see as successful and having them explain why can help link strategy to success. Invite kids to join conversations with brokers, accountants and financial planners to see how the stock market is still a good strategy for portfolio growth over time. Use current news topics like COVID and inflation to help teens understand that they can overcome the inflection points they will encounter in their own lives with sound planning, saving and investing. 

Encourage them to participate in programs like JA Take Stock in Your Future, which introduces students to the stock market and puts their knowledge into practice via classroom curriculum and a competition event. Other JA programs teach kids about buying a car, starting and operating a business, creative problem-solving, selecting a career, and paying for college, among other vital topics.

Finance and business may seem complex and foreign. Parents should work with their kids in early high school to talk with them about the stock market and business. They need to know these things are not rocket science. And parents want them to be confident they can figure it out if they have a passion for it.

Teenagers need to understand how to cope with increasing education costs and complexities, stock market volatility, inflation, and residual pandemic effects. This is not to mention non-fungible tokens, cryptocurrency, and other contemporary technologies and investment opportunities that will affect their futures. 

For most kids — and many adults — investing is more mystery than clarity. You can raise a successful budding entrepreneur … from the piggy bank to the shark tank with some time and effort.

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