In this post, Society member Davis Polk counsel Ning Chiu discusses Vanguard's recent update to its proxy voting guidelines on environmental and social issues, which reiterates board responsibility for risk oversight (inclusive of environmental and social issues) but - according to Vanguard Investment Stewardship Officer Glenn Booraem - aims to 'better articulate' the types of environmental and social proposals it will consider supporting. Going forward, Vanguard will either vote 'for' or 'against' each of these types of proposals based on its updated guidelines rather than relying on abstentions, which - in most cases historically - were, in effect, used to signify its view that oversight and associated judgments on these sorts of issues generally remained within the purview of the board.
The updated guideline provides:
V. Environmental and social proposals
Proposals in this category, initiated primarily by shareholders, typically request that a company enhance its disclosure or amend certain business practices. The funds will evaluate these resolutions in the context of our view that a company's board has ultimate responsibility for providing effective ongoing oversight of relevant sector- and company-specific risks, including those related to environmental and social matters. The funds will evaluate each proposal on its merits and may support those where we believe there is a logically demonstrable linkage between the specific proposal and long-term shareholder value of the company. Some of the factors considered when evaluating these proposals include the materiality of the issue, the quality of current disclosures/business practices, and any progress by the company toward the adoption of best practices and/or industry norms.
Booraem notes: '"In instances where the proposal doesn’t clear our hurdle for support, we will still engage directly with the company if we believe the broader topic has the potential for impact on long-term value.”'
As previously reported in the Society Alert and Directors' Cut ("Leading Asset Managers Prefer Engagement First on ESG") sourced from this Bloomberg brief, Vanguard, BlackRock and other leading asset managers have continued to express a preference for engagement first with their portfolio companies to effect change on ESG issues like climate risk, rather than simply voting contrary to the board's recommendations on shareholder proposals - notwithstanding pressures imposed by certain other smaller investors.
Access numerous additional resources on our Institutional Investors, Shareholder Proposals and ESG topical pages.