ESG group skewers Vanguard over its stewardship

The firm is doing better on disclosure but has a long way to go, one group says

An activist group affiliated with the Sierra Club has taken aim at Vanguard over the company’s stewardship report, which allegedly falls short of meaningful ESG disclosures.

The asset management giant issued its semi-annual stewardship report in August, outlining its efforts on corporate governance and shareholder value. Although Vanguard published the names of more than 800 companies that its investment stewardship team had engaged with during the first half of 2022, the firm did not do enough to show how it is addressing climate risks, according to a statement on Thursday from the activist group Vanguard SOS.

“The report offers few insights into Vanguard’s characteristically opaque stewardship priorities and disappointingly falls short of outlining concrete strategies for what the asset manager will do if companies in its portfolio fail to mitigate climate risks to their businesses,” the group stated.

It credited Vanguard for naming companies that it has engaged with – pressing corporate boards and management for more information on material risks – but it noted that crucial details are still lacking.

“Disclosing the companies it engages with is good, but Vanguard omits – or perhaps it lacks altogether – the criteria it is using to determine how it prioritizes engagement in the first place,” Vanguard SOS stated. “This omission is especially glaring when it comes to climate risk. It also fails to detail the outcome of its engagements, which leaves one wondering what if any impact Vanguard’s stewardship team is having on behalf of its clients.”

Some examples

Vanguard’s stewardship report includes numerous case studies of engagement efforts with its portfolio companies. That included a climate-related lending shareholder proposal at Bank of Montreal, which Vanguard voted against, as well as a sustainable packaging resolution at Jack in the Box, which it voted for, that passed.

It also included a greenhouse gas emissions reporting proposal at Caterpillar, which Vanguard voted for, that ultimately passed as well.

Vanguard also pointed to discussions it had over human-rights issues with electronics manufacturer Foxconn, Sime Darby Plantation and others.

Voting history

Of the 379 shareholder proposals focused on environmental or social issues at Vanguard portfolio companies, the asset manager voted in favor of 8% of them, according to the company’s own report. That is down from 20% support among 227 such proposals during the first six months of 2021, Vanguard noted.

However, the asset manager has been clear that it has “no agenda beyond shareholder return,” global head of investment stewardship John Galloway said in an interview earlier this year with ESG Clarity.

On climate change in particular, “there’s a frustration with lack of governmental action, particularly in the States, and therefore a desire for other entities to step in and do something,” Galloway said. “We don’t believe that’s the role we can or should play. We are not a solution to a societal challenge that needs governmental action.”

The asset manager did not immediately respond to a request for comment about the Vanguard SOS statement.

“Vanguard has broadly acknowledged that climate is a material risk, but it fails to make the obvious and direct connection between the two,” the activist group’s statement read. “It seems Vanguard expects its investors to take its judgments at face value without providing any details about the criteria of judgment.”

Wider campaign

Vanguard SOS, which is part of the Sunrise Project, has affiliates that have targeted other asset managers, including BlackRock, Fidelity and Invesco.

But BlackRock, which has had no shortage of criticism from progressive groups and fossil-fuel industry supporters, has “managed to at least establish concrete criteria that directs its engagement with the most carbon intensive public companies,” Vanguard SOS said in its statement.

Additionally, that group chided Vanguard for having a stewardship team of 35 people as of 2021.

“As a comparison, BlackRock employs a team that is twice that number,” it stated. “As a result, Vanguard continues to showcase one of the worst voting records in the industry when it comes to climate-related shareholder resolutions.”