Vanguard Gets Extra ETF Billions After Largely Shunning ESG
So asset managers operating in Europe and the U.S. generally “have to deploy very different marketing strategies on either side,” Garcia-Zarate said. “In Europe you talk to investors all about your ESG credentials,” and then “the marketing message has to be completely turned around when you talk to American investors.”
Vanguard, however, “takes the same approach on both sides of the Atlantic,” he said.
In billions of eurosSource: Morningstar
Vanguard made headlines last month when it announced it was walking out of the Net Zero Asset Managers initiative, which is a sub-unit of the Glasgow Financial Alliance for Net Zero. The decision marked the biggest defection from the climate-finance alliance, which was convened by former Bank of England Governor Mark Carney in early 2021.
The investment manager, which has about 80% of its portfolio assets in index-tracking funds, said it couldn’t commit to net zero because its business model doesn’t allow it to “choose the securities in a fund or dictate a portfolio company’s strategy or operations.”
Before quitting NZAMi, Vanguard had the lowest net-zero alignment of all members, the alliance said last year. And an October report by environmental think tank Universal Owner found that the net-zero claims Vanguard made were difficult to verify.
Despite last year’s underperformance, investment clients are still channeling money into European ESG ETFs. Morningstar estimates that 65% of all flows into the region’s ETFs went into ESG products in the fourth quarter. By comparison, that figure was just 14% in 2019, the researcher said.
And despite its growth last year, Vanguard’s European presence remains dwarfed by that of BlackRock, whose iShares assets under management in the region are more than seven times the size of Vanguard’s ETFs, according to Morningstar.
“Investors overwhelmingly favor ESG as a long-term trend,” Garcia-Zarate said. “But in 2022 — when ESG did worse than mainstream assets — that helped Vanguard.”
Pictured: The Vanguard Group headquarters in Malvern, Pennsylvania. (Image: Bloomberg)