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Vanguard leaves investors at risk of exposure through fossil fuel investments

July 09, 2021

Responsible Investor: 

Vanguard and other asset managers want us to believe that passive investing means they can’t take active decisions to exit fossil fuels. That is not the case. Passive funds do not mean passive decisions, and we all need to stop repeating this as the truth. 

That’s the finding of an important new study from IEEFA that analysed the world’s second largest asset manager’s holdings to better understand fossil fuel exposure, the impact these poorly performing companies are having on earnings and how they can exit the sector. Vanguard and others tell us, ad nauseam, that they have no control over these passive index tracking funds. However, IEEFA’s report found that Vanguard does have the ability, with a simple board vote, to exit fossil fuels in its passive funds. Exposing this is an important first step towards addressing what we call the passives problem and its dramatic impacts on climate change. 

Vanguard and The Passive Problem

For Vanguard to acknowledge it has active control over its passive funds is particularly important, because as it turns out the idea behind passive investing began with Vanguard. Way back in 1976, Vanguard founder Jack Bogle launched the first mutual fund to passively follow the S&P 500. His innovation showed promise: It offered reduced risk, low fees, broad diversification, and stable and strong returns over a long-term horizon as compared to “stock picking” through active investment. 

[Justin Guay] 

More: Passive investors’ hands aren’t tied on fossil fuels

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