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Sean D. Reyes
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Vanguard Backs Off ESG Effort After Attorney General Reyes Leads Multistate Motion

December 7, 2022

Today, just days after Utah Attorney General Sean D. Reyes led 13 states in a motion to intervene and protest Vanguard’s application to the Federal Energy Regulatory Commission (FERC), Vanguard Group Inc. announced it will withdraw from a major investment industry initiative committing to an environmental-social-governance (ESG) climate agenda. Vanguard says it reviewed its relationship with Net Zero Asset Managers initiative and decided it was best to “maintain its freedom not to restrict its investment options.”

Attorney General Reyes is among a group of Republican attorneys general who are pushing back against Vanguard’s environmental activism. There is concern that the pressure to accelerate zero-emission utilities by 2050 will result in much higher rates for consumers as well as reduced reliability. 

Attorney General Reyes said,

“Last week, our office led a 13-state coalition in warning regulators that Vanguard’s investment in utility companies posed a threat to our States, given their commitment to so-called environmental, social, and governance (ESG) standards.

If this issue was truly about reasonable green policy and informed investment decisions, we would not object. There is nothing offensive about individual investors making social impact decisions for themselves. But leveraged activism against the will of many investors is extremely concerning.

I’m very encouraged to hear Vanguard today announced it is quitting the ‘Net-Zero Banking Alliance,’ a multi-national banking coalition whose mandates compromise fiduciary duties and minimize shareholder profits in exchange for a radical environmental agenda.

This is a first step toward unwinding a global, cross-industry collusion that threatens the retirement incomes, jobs, and energy needs of Utahns and all Americans. Vanguard’s actions today suggest that it takes seriously its fiduciary role and should be commended.”

FERC regularly reviews such applications, which it can either approve or deny. States say the hearing is necessary to determine whether electricity consumers and other ratepayers would be at risk of higher rates and reduced reliability of electricity supply if the purchases are approved. 

In 2019, Vanguard persuaded the Commission that its transactions would not affect rates, competition, and regulation.   That included “day-to-day management or operations of any traded utility nor invest for the purpose of managing, controlling or entering into business transactions with portfolio companies.”

Recently, however, Vanguard has made public statements indicating it would “accelerate the transition toward global net zero emissions,” by shifting electricity production completely away from natural gas and coal, which is now 67% of the global source. It has also worked on influencing ESG corporate policies with other major financial institutions such as BlackRock. 

The motion stated: “By making net zero commitments, Vanguard necessarily abandoned its status as a passive investor in public utilities and adopted a motive consistent with managing the utility. These commitments, on their face, further suggest that Vanguard has already undertaken and is currently undertaking corresponding activities that may constitute attempts to manage utilities—the precise actions Vanguard represented in its 2019 application and its pending application that it would not take.”

In addition to Utah, Indiana, Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Ohio, South Carolina, South Dakota and Texas also joined the motion last week.