{"id":5041,"date":"2021-06-30T09:35:07","date_gmt":"2021-06-30T09:35:07","guid":{"rendered":"https:\/\/energytracker.asia\/?p=5041"},"modified":"2021-07-22T05:10:54","modified_gmt":"2021-07-22T05:10:54","slug":"vanguards-fossil-fuel-exposure","status":"publish","type":"post","link":"https:\/\/energytracker.asia\/vanguards-fossil-fuel-exposure\/","title":{"rendered":"Fossil Fuel: Rising Concerns On Vanguard\u2019s Investments"},"content":{"rendered":"
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Vanguard Group, the world\u2019s second-largest asset manager, currently holds around USD $300 billion in fossil fuel funds. With over USD $7.2 trillion in assets under management (AuM) including USD $90 billion in coal, it has not yet declared any phase-out plan. This finds harsh criticism in a new report<\/a> : The US-based Institute for Energy Economics and Financial Analysis (IEEFA) rebukes Vanguard over its passive approach towards climate change.\u00a0<\/p>\r\n\r\n\r\n\r\n

Presence in Asian geographies<\/h2>\r\n\r\n\r\n\r\n

Although Vanguard has pledged to reduce its emissions by 2030 and attain net-zero by 2050, the report pin-points a laid-back attitude towards climate. The finance giant not only has a majority stake in most of the US listed companies but also a strong say in their management decisions. In Asia, Vanguard mainly focuses its business in Shanghai, China, as it will scale down its Hong Kong activities<\/a>. Although the company had closed its office<\/a> in Singapore and Japan, it still plans to grow in the Asian markets overall.<\/p>\r\n\r\n\r\n\r\n

With index funds to world\u2019s number two<\/h2>\r\n\r\n\r\n\r\n

Vanguard majorly deals in index funds, also called passive funds. Contrary to active funds, they are usually not overseen by an investment manager. Therefore, they are cheaper to invest in. Since the creation of the world’s first index mutual fund 45 years back, the investment group has grown to the industry\u2019s number two after Blackrock.<\/p>\r\n

Funds exposed to the fossil fuels industry<\/h3>\r\n\r\n\r\n\r\n

Capturing 80% of Vanguard’s business and valuing around USD $5.5 trillion, these index funds comprise Exchange Traded Funds (ETFs) as well as mutual funds. But they are largely exposed to fossil fuels, the study titled \u201cVanguard Group: Passive About Climate Change<\/a>\u201d found.<\/p>\r\n

Fossil fuels include natural gas, coal, and heavy oils. Fossil fuels extraction and usage as natural gas increase carbon dioxide into our atmosphere.<\/p>\r\n

Are fossil fuels more efficient than renewable energy?<\/h2>\r\n

One study<\/a> proves that renewable energy sources generally account for roughly 50g or less of carbon dioxide emissions per kWh over their lifetime. This is a stark difference when compared to about 1000 g carbon dioxide\/kWh generated for coal and generated 475 g carbon dioxide\/kWh for natural gas. Most greenhouse gas emissions generated from fossil fuels are the product of fuel combustion, but fossil fuels plant operations and the decommissioning of their facilities are also noxious to the atmosphere.<\/p>\r\n\r\n\r\n\r\n

Increasing risks for Vanguard investors<\/h2>\r\n\r\n\r\n\r\n

Consequently, Vanguard\u2019s investors face an increasing risk. Around 15% of Vanguard\u2019s total assets are part of the so-called Total Market Index Fund (VTI)<\/em>. With USD $1.2 trillion, it is also the world\u2019s largest fund. However, according to the report, the VTI underperformed versus a comparable benchmark which excludes oil, natural gas and coal. Since January 2020, the MSCI USA ex Fossil Fuels has been 5.6% stronger.\u00a0<\/p>\r\n\r\n\r\n\r\n

This may be \u201cthe beginning of profound wealth destruction\u201d, the IEEFA warns. More frequent extreme weather conditions could lead to intensified financial losses of the VTI related to damages and insurance.<\/p>\r\n\r\n\r\n\r\n

\"graphic\r\n
Source: IEEFA report<\/figcaption>\r\n<\/figure>\r\n\r\n\r\n\r\n

Lack of Environmental, Social, and Governance labeled funds<\/h2>\r\n\r\n\r\n\r\n

Worse, the authors highlight that Vanguard markets only five Environmental, Social, and Governance (ESG)<\/a> labeled funds to investors in the United States. As of 30 April 2021, its ESG products had USD $18 billion AuM. This was 0.26% of Vanguard\u2019s total, the report calculates.\u00a0<\/p>\r\n\r\n\r\n\r\n

Vanguard’s fossil fuel exposure and carbon dioxide emissions<\/h2>\r\n\r\n\r\n\r\n

Referring to the data from Fossil Free Funds<\/a> and Morningstar<\/a>, IEEFA states that Vanguard\u2019s passive equity funds contain between USD $227-265 billion of fossil fuel exposure. This takes the index giant’s overall fossil fuels, oil, natural gas and coal investments to around 6% of its total assets.<\/p>\r\n\r\n\r\n\r\n

The aggregate fossil fuel data of Vanguard\u2019s top three funds alone surpass USD $130 billion. Out of its 62 passive equity funds, only up to 15% have a low climate risk, the report highlights.<\/p>\r\n\r\n\r\n\r\n

\"Vanguard\r\n
Source: IEEFA report<\/figcaption>\r\n<\/figure>\r\n\r\n\r\n\r\n

Scope of disinvestment in fossil fuels business<\/h2>\r\n\r\n\r\n\r\n

The other major funds in Vanguard\u2019s portfolio are its actively managed assets totaling around USD $1.2 trillion in the US. IEEFA estimates<\/a> that over half of its estimated USD $540 billion are equity funds and comprise high fossil fuel investments. The aggregate fossil fuel exposure in Vanguard’s actively managed funds stands at around USD $14 billion. The positive side of these funds are that they provide flexibility to divest or invest in companies or bonds.<\/p>\r\n\r\n\r\n\r\n

\"Vanguard's\r\n
Source: IEEFA report

<\/figcaption>\r\n<\/figure>\r\n\r\n\r\n\r\n

Blackrock and it’s commitment to greenhouse gas emissions<\/h3>\r\n

For instance, the world\u2019s biggest investment group Blackrock divested coal companies from its actively managed funds in 2020. Indeed, Vanguard\u2019s biggest competitors are slightly ahead on the climate path. This April, State Street announced it would join the USD $37 trillion Net Zero Asset Managers initiative<\/a>. The group is committed to support the goal of net-zero greenhouse gas emissions by 2050. The initiative currently has 87 signatories<\/a> and bolsters the efforts of its members to limit global warming to 1.5 degrees Celsius.<\/p>\r\n\r\n\r\n\r\n