Last week, Urgewald published its 2022 Global Coal Exit List (GCEL), the most significant finding of which is that almost half of all coal companies are planning new coal projects. The transition is nowhere in sight for the industry as a whole.
U.N. Secretary-General António Guterres has rightly said that “investments in new fossil fuel infrastructures is moral and economic madness.” Yet Vanguard is invested in the coal industry to the tune of $101 billion, with a significant portion of those companies engaged in building new coal infrastructures.
Thermal coal is one of the dirtiest and deadliest fossil fuels, and stopping coal expansion should be the top priority of financial institutions. The IPCC and the IEA have both made clear that new fossil fuel projects, especially coal, threaten the goal of limiting global warming to 1.5°C. Vanguard needs to follow the science and solve its coal problem by adopting a robust coal exclusion policy immediately in order to preserve the planet’s remaining carbon budget.
Vanguard’s current approach to climate risk amounts to little more than a simple stewardship model of essentially “claim to engage now, dodge questions later.” This is not acceptable. As one of the largest asset managers in the world and a universal owner of the economy, Vanguard has an obligation to step up. Instead, the financial giant is being left behind.
Just last month, HSBC Asset Management pledged to immediately stop financing the expansion of thermal coal from its actively managed funds and published a 10-point plan to exit coal in EU and OECD markets by 2030, and globally by 2040. While HSBC AM is far from truly exiting coal, its new policy is a welcome first step in the right direction.
OFI Asset Management, meanwhile, is setting an even higher bar for its global competitors. This past summer, the firm committed to fully exiting coal by 2030 through the exclusion of all coal developers, and strict mandates for portfolio companies to apply in the coal sector. Not to mention its new sanctions on oil and gas expansion that take effect immediately.
Vanguard S.O.S. network partner, Reclaim Finance, said this of OFI’s latest moves: “This is the first time an asset manager has so clearly used its bond power to push back on fossil fuel expansion, while trying to influence its companies’ transition pathways through its equity holdings.”
Asset managers are clearly able to make substantive commitments while also upholding its responsibilities as a fiduciary, so why hasn’t Vanguard made any? The firm is a fellow signatory to the Net Zero Asset Managers initiative, just like HSBC and OFI, and must act accordingly.
Vanguard’s theory of stewardship and responsibility on climate risk — and more specifically to companies with significant coal exposure — has been “we believe it is better to own, engage, and encourage boards to manage climate risks through the transition to a low-carbon economy than it is to exclude and divest.” Well, tea-and-biscuit engagement might have been an acceptable strategy 20 years ago, but we are long past the time for discussion and even disclosure. Vanguard must set clear, time-bound requirements around true transition plans with real consequences and red lines on expansion projects with the companies in its portfolio. Anything less is just theater.