Vanguard’s
Tim Buckley
is having a Copernican moment. Like the famous Renaissance polymath who challenged conventional wisdom about celestial movement, the 54-year-old CEO is challenging the asset-management industry’s environmental, social and governance orthodoxy.
“Our research indicates that ESG investing does not have any advantage over broad-based investing,” Mr. Buckley said in a recent interview with the Financial Times. Matching word to deed, his comments came after he had withdrawn his firm from the $59 trillion Net Zero Asset Managers initiative, an organization that is part of the $150 trillion United Nations-affiliated Glasgow Financial Alliance for Net Zero. Both alliances are committed to restricting their investments over time to companies that are compliant with the Paris Agreement’s objective of net-zero greenhouse gas emissions by 2050. Mr. Buckley claims the financial world, swept up in climate-change fervor, can’t make such commitments without reneging on its fiduciary duties.
Mr. Buckley’s assertions would be innocuous if he were a small hedge-fund manager or a climate-change denier. He is neither. Depending on how and when you measure, Vanguard is the largest or second-largest asset manager in the world. Pulling his firm out of the world’s largest association of financial institutions dedicated to net-zero goals should have seismic implications. What is it that Mr. Buckley knows that so many others don’t?
For one thing, he understands that it’s difficult for active managers to beat broad indexes, as most ESG funds promise. “In investing, you get what you don’t pay for,” as Vanguard founder
John C. Bogle
observed. “Intelligent investors will use low-cost index funds to build a diversified portfolio, . . . and they won’t be foolish enough to think that they can consistently outsmart the market.”
Mr. Buckley effectively claims that ESG managers are playing the fool and taking their clients’ money with them. Fewer than 1 in 7 active equity managers outperform the broad market in any five-year period. Over the past five years, not one relied exclusively on a net-zero investment methodology. Outperforming the market is even more difficult over longer time horizons—only 1 in 10 over 10 years, and 1 in 20 over 20 years, ever do.
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