In Vanguard’s just-published Investment Stewardship report, Chairman and CEO William McNabb encourages readers to “look beyond the numbers” when reading about Vanguard’s engagement efforts as a responsible investor. That is because the numbers don’t suggest Vanguard is particularly engaged.
Like all asset managers wanting to maintain good terms with the companies in which they invest (and whose retirement assets they may manage), Vanguard first engages the companies in private meetings. The stewardship report lists 954 such corporate engagements during last proxy season (July 2016 through June 2017), up from 817 the prior year. The low support for shareholder resolutions suggests Vanguard is happy with the outcome of its engagements.
What do corporations commit to during engagements with Vanguard, BlackRock, State Street, and other large asset managers? How do the asset managers hold the corporations to account on these promises? We don’t know. That is why the truly responsible investors (public pension funds, faith-based groups, As You Sow, etc.) file resolutions year after year seeking public transparency around issues ranging from slavery to climate change. Shareholders who file climate-related resolutions hope the large asset managers will join them in forcing corporate leaders to take the Paris Agreement seriously.
This year, the largest asset managers, including Vanguard and BlackRock, got behind successful resolutions at Exxon, Occidental Petroleum, and energy utility PPL. At seven other utilities, where the measures failed, the vote averaged 45%. When SEC files reveal who the Missing55 are, we hope to learn from them why emissions at some companies matter less than emissions at others.
Vanguard itself faced a proxy challenge this year from Walden Asset Management, which sought increased disclosure of the company’s votes on social and environmental resolutions. The ballot item was withdrawn after Vanguard committed to heightened scrutiny of climate-related risk.
“Vanguard still doesn’t support the vast majority of environmental and social issue resolutions on matters of significant concern to a growing number of investors,” said Tim Smith, Walden’s director of ESG Shareowner Engagement. “Looking ahead, investors in Vanguard funds must remind the mutual fund company to use its enormous influence and proxy voting to encourage more sustainable business practices on important environmental and social issues.”