Asset management giant Vanguard will continue investing in fossil fuels firms despite its commitment to hit net zero across its portfolio by 2050, its boss has revealed.
The world’s second-largest asset manager, which manages $8.1tn, said it was committed to shielding its clients from climate risks but would not pull back from fresh investment into coal, oil and natural gas firms.
“Our duty is to maximise long-term total returns for clients. Climate change is a material risk but it is only one factor in an investment decision,” boss Mortimer Buckley told the Financial Times.
He said that Vanguard does not look to “direct company strategy” but engages with companies on climate change and “ask them to set goals and to report how they are mitigating climate risks”.
Firms with a large carbon footprint could be critical in the transition to net-zero, he added.
Buckley’s comments came as the asset manager revealed its net-zero transition report on progress to hit net zero across its portfolio by 2050, with just 17 per cent of its $1.7tn in managed funds aligned with the 2050 target.
The firm said that more than 70 per cent of its passive equity index fund assets are invested in companies with emission reduction goals.
The figures come amid a fierce debate in the asset management industry over the role of environmental, social and governance (ESG) and climate-focused investments, after HSBC’s global chief of responsible investment said last week that the risks had been overstated.
Pioneer of the ESG label, Paul Clements-Hunt, told City A.M. on Monday that the reaction to the comments revealed a schism in the industry, in which maximal returns were at odds with the direction of travel on ESG.
“Increasingly we will see a generational shift – a split – in the asset management industry.,” he told City A.M.
“Where does real talent want to go? What bright, engaged, aspiring mid 20s investment professional would want to fully align themselves with a rear view 20th Century “shareholder maximisation” mindset? Some would but would you want to hire them?”
Nairobi-based Clements-Hunt, who established the advisory firm Blended Capital Group in 2012, also said the frenzied free-for-all of ESG marketing was over as investors grow increasingly sceptical ot the reality behind ESG strategies.