Vanguard and BlackRock Join the Push for Net-Zero Greenhouse Gas Emissions by 2050

Vanguard Group, Inc. and BlackRock, two of the world’s largest asset managers, joined the Net Zero Asset Managers Initiative pledging to support efforts to limit global warming to 1.5 degrees Celsius and accomplish net zero greenhouse gas emissions by 2050, as called for in The Paris Agreement. (Alastair Marsh, Bloomberg Law). Net-zero is the “balance between emissions produced and those taken out of the atmosphere through technologies like carbon capture.” (Ross Kerber, Reuters). To achieve that goal, Vanguard and BlackRock have stated their commitment to cutting the net greenhouse gas emissions of their portfolios to zero. (Alastair Marsh, Bloomberg Law).

The Net Zero Asset Managers Initiative was established last year and currently has around 73 signatories, 43 of which are investment firms. (Ross Kerber, Reuters; Alastair Marsh, Bloomberg Law). Together, Vanguard and BlackRock account for half of the $32 trillion of total assets supporting the initiative. (Ross Kerber, Reuters). BlackRock has previously called on companies to meet the net-zero goal by 2050, but Vanguard has been less explicit, and the recent announcement is showcasing a big step for the fund. Id. Vanguard Chief Executive Officer, Tim Buckley, stated that “Climate change represents a long-term, material risk to our investors’ portfolios,” and that Vanguard looks forward to forming “win-win solutions for long-term shareholder return and the goal of net-zero emissions by 2050.” (Alastair Marsh, Bloomberg Law; Ross Kerber, Reuters).

In addition to the scientific research and warnings regarding impending catastrophic impacts if proper steps are not taken to reduce emissions, recent dedication to climate change by both asset managers is in large part due to activist, client, and regulator pressure. (Alastair Marsh, Bloomberg Law). These groups have been pushing investors to put their resources and influential abilities to the test by holding companies accountable for their carbon footprint. Id.

Key players in the climate change campaign field, such as Casey Harrell, and non-governmental organizations, including the Sierra Club and Amazon Watch, were primarily focused on pressuring BlackRock, and have now shifted their attention to Vanguard. (Alastair Marsh, Bloomberg Law). Harrell’s efforts have been viewed as “instrumental in pushing BlackRock Inc. to act against climate change.” Id. For example, Harrell assembled a network of organizations, now known as “BlackRock’s Big Problem,” that continuously pressed BlackRock to divest from fossil fuels. Id. BlackRock’s Big Problem is a “global network of NGOs, social movements, grassroots groups, and financial advocates that are pressuring asset managers to rapidly align their business practices with a climate-safe world.” (BlackRock's Big Problem Website - About Page). This global network increases pressure on fossil fuel backers through their “customers, employees, peer companies, and in the media.” Id. BlackRock’s Big Problem campaign applies pressure through publicly exposing the actions of asset managers like BlackRock and Vanguard, which the public is typically unaware of. Id. Additionally, BlackRock’s Big Problem’s website urges individuals to email, call, and tweet at BlackRock requesting that it act on climate promises made, and to join the campaigns’ protests. (BlackRock's Big Problem Website - Action Page).

Harrell has shifted his plan of attack to Vanguard’s investors. (Alastair Marsh, Bloomberg Law). Harrell wants to inform Vanguard’s individual investors of Harrell’s campaign to ensure Vanguard follows through with its climate-related promises. Id. Harrell’s hope is that enlisting individual investors in the campaign will lead to the investors expressing their “disquiet directly to the firm and fund advisers.” Id. He believes this will make “climate change an unavoidable daily topic” that Vanguard will be forced to address. Id.

The criticisms that Vanguard and BlackRock have faced from climate campaigners are two-fold. First, both firms have high stakes in fossil-fuel companies and climate destroying companies. Id. Vanguard held $86 billion of the debt and equity of companies involved in thermal coal. Id. BlackRock is right behind Vanguard, holding $84 billion. Id.

Second, their track record on proxy voting and failure to vote on climate resolutions has given activists a negative perception of the firms’ desire to act on climate change. (Alastair Marsh, Bloomberg Law). The global head of investment stewardship at Vanguard, John Galloway, responded to the proxy voting arguments that “simply because a proposal has the word climate in the title doesn’t mean, that in our careful analysis, we will decide that the proposal is in the right long-term interests of shareholders.” (Alastair Marsh, Bloomberg Law). The climate campaigners have been pressing BlackRock to divest from fossil fuel companies, support climate resolutions, and to vote against directors at companies behind the climate change curve and unwilling to progress at an appropriate rate. Id. It is likely that the same pressures are on Vanguard now, in light of the campaigners shifting focus over to Vanguard from BlackRock.

BlackRock and Vanguard should be aligning their 2030 portfolio targets with the 50% global reduction in carbon dioxide (“CO2”) “that scientists specified as necessary to limit warming to 1.5 degrees.” (Alastair Marsh, Bloomberg Law). For BlackRock and Vanguard to reach the global carbon dioxide target, the firms will likely press companies they own to cut out their own emissions and to redesign their portfolios by divesting in companies that heavily contribute to global warming and reinvesting in green businesses instead. Id. To reach their targets, the firms should be reporting their annual “progress toward the recommendations of the Task Force for Climate-related Financial Disclosures.” Id. One effort includes setting action plans in alliance with the 50% global reduction in CO2 to be monitored by investor climate groups. Id.

The decision by BlackRock and Vanguard to become signatories to The Net Zero Asset Managers Initiative and to expressly speak out against global warming and their desires to contribute to acting on climate change is likely to spark a larger discussion about the extremely important environmental crisis our world is in. Activists argue that the efforts through a fund’s portfolios and the private sector is useful, but government action is necessary. (Ross Kerber, Reuters). I agree that additional steps need to be taken on a government level, so the action being taken matches the severity of the threat to our planet. Additionally, I have concerns of whether companies claiming to make business changes in light of the environmental climate are actually going green and making meaningful changes or if this is a case of greenwashing. However, I do believe and have hope that this is a great starting point to create a dynamic discussion in the corporate realm. Whether these efforts will actually create a sufficient effort or not will take time to determine because The Net Zero Asset Managers Initiative is in its conceptual stage. (Alastair Marsh, Bloomberg Law). Nonetheless, getting the conversation started and warming companies up to the idea of going “green” should start from within, which is what investment firms like BlackRock and Vanguard are attempting to achieve. Id.