An update on Vanguard’s engagement with the Net Zero Asset Managers initiative (NZAM)

More than 30 million individual investors around the world have chosen to entrust Vanguard with their hard-earned savings. We have a singular goal to maximize their long-term returns and give them the best chance for investment success as they save for retirement, a child’s education, a home, or simply a more secure financial future.

Approximately 80% of our clients’ assets are invested through index funds, which provide broadly diversified access to stock and bond markets at minimal cost. Index fund managers don’t choose the securities in a fund or dictate a portfolio company’s strategy or operations. Instead, they buy and hold all securities included in the benchmark index and capture the return that the market provides. In the words of our founder, Jack Bogle, rather than searching for the needle in the haystack, buy the whole haystack. It’s an approach that has helped build wealth for tens of millions of everyday investors. Importantly, indexing relies on efficient and fair capital markets. Companies’ disclosure of material financial risks is central to that market health, which is why material risk identification and disclosure is a critical priority for Vanguard.

Climate change, and the ongoing global response, will have far-reaching economic consequences for companies, financial markets, and investors, presenting a clear example of a material and multifaceted financial risk. Vanguard has been taking steps to understand and attend to this risk to investors’ returns, including through our engagements with portfolio companies, policymakers, and broader industry efforts. As part of these efforts, and consistent with our commitment to promoting portfolio company disclosure of material financial risks, Vanguard joined the Net Zero Asset Managers initiative (NZAM) in 2021. Such industry initiatives can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms. That has been the case in this instance, particularly regarding the applicability of net zero approaches to the broadly diversified index funds favored by many Vanguard investors. Therefore, after a considerable period of review, we have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors. This decision is part of our continuous assessment of our participation in external organizations and their ongoing alignment with Vanguard’s mission and perspectives on investing.

This change in NZAM membership status will not affect our commitment to helping our 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. 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.