Vanguard's decision to leave the world's biggest climate-finance group could impede on Biden's plan to protect Americans' savings from the climate crisis

• Vanguard announced on Wednesday it's pulling out of an initiative to fight climate change.
• It said that its involvement in the initiative sparked "confusion" among its investors.
• Biden previously proposed a plan to involve the financial sector in reaching net zero carbon emissions.

The world's biggest mutual fund manager is pulling out of an initiative to combat the climate crisis. It could throw a wrench in President Joe Biden's plan to protect Americans' savings.

On Wednesday, Vanguard Group Inc. announced it would no longer be a part of the Net Zero Asset Managers (NZAM) initiative, which was created in 2020 and currently has 291 firms involved in the efforts to reach net zero carbon emissions by 2050.

Vanguard wrote in a corporate statement that climate change "will have far-reaching economic consequences for companies, financial markets, and investors, presenting a clear example of a material and multifaceted financial risk," and as a result, it joined NZAM in 2021. However, it said that doing so stimulated "confusion about the views of individual investment firms."

"Therefore, after a considerable period of review, we have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors," it said.

As Insider previously reported, Biden last year released a report that focused on mitigating the financial risks climate change puts on people's retirements, pensions, savings, and more. When it comes to investments, Wall Street financial models rely on a stable climate when making decisions, and there are two risks they need to evaluate: physical risks, which refer to extreme weather that could impact infrastructure and private investments, and transition risks, which refer to costs incurred during the shift away from carbon-focused economies.

The purpose of the report was to outline a whole-of-government approach to make the US financial system more resilient to the climate crisis, and getting major corporations and financial firms involved was key. While Vanguard maintained in its statement that it will continue to help investors "navigate the risks that climate change can pose," Al Gore — a former US Vice President and staunch climate advocate — criticized the decision on Wednesday, per Bloomberg.

"It's an irresponsible and shortsighted decision," he said.

However, Republicans have plans to increase oversight over Wall Street firms that are assessing climate change and prioritizing environmental, social and governance causes, known as ESG. "My view is that ESG investing is a cancer within our capital markets," GOP Rep. Garland Barr told The Washington Post. "It is a fraud on American investors." 

Still, the world is making some progress toward fighting the financial risks of climate crisis. The COP27 climate summit brought world leaders together in Egypt to tackle climate issues last month, and negotiators from nearly 200 countries agreed to establish a fund that would help the most vulnerable countries recover from negative climate impacts, like pollution, caused by rich countries.