Further to its recently updated Environmental & Social proxy voting guidelines (§V) (previously reported on here) and associated voting on E&S proposals during the 2017 proxy season, Vanguard announced Walden Asset Management's withdrawal of its previously-submitted proposal calling on Vanguard to report on its climate change proxy voting policies and practices (reported on here). The proposal was slated to be voted upon at Vanguard's annual meeting in November.
In a welcome move, Vanguard also plans to increase its transparency on its corporate engagement and proxy voting activities in a manner similar to BlackRock - beginning with expanded reporting on its approach to climate risk and board gender diversity.
Vanguard Investment Stewardship Officer Glenn Booraem commented:
The resolution that we’ve reached with Walden is evidence of engagement in action. Walden’s request also coincided with our plans for more comprehensive reporting on our Investment Stewardship activities; the first iteration of our expanded reporting will be published later this month, coincident with the annual filing of our proxy voting records. This report will feature deeper discussion of our thinking on climate risk and gender diversity on boards (as two issues on which we expect continuing focus), as well as expanded anecdotal discussion of specific engagements, voting rationale, and vote decisions.
Vanguard's updated E&S guidelines provide for evaluation of each E&S shareholder proposal "on its merits" and a corresponding "for" or "against" vote, rather than relying on abstentions, which Vanguard often used historically to signify its view that oversight and associated judgments on these sorts of issues generally remained within the purview of the board. As previously noted, Vanguard provided additional color and clarification on its E&S proposal approach in an interview published in Proxy Insight last month.
Booraem noted in the announcement:
Climate change represents an evolving set of risks and opportunities for companies in many sectors. Vanguard has prioritized climate risk on our engagement agenda, and we have discussed the topic with more companies over the past year than ever before. Our discussions have centered on advocating for disclosure of material risks to companies’ long-term business prospects and the value of their assets under a range of forward-looking scenarios. It is crucial to our fund investors that market participants have access to consistently comparable information to incorporate these risks and opportunities into market prices.
In a concurrent interview with Reuters, Booraem said that investor views run the gamut on the environment and diversity, and described Vanguard's evolved approach on climate and other shareholder proposals as economics- rather than peer pressure, principles-driven: "Our support for these proposals is not a matter of ideology, it's a matter of economics," he said. "To the extent there are significant risks to a company's long-term value proposition, we want to make sure there is long-term disclosure of those risks to the market."
Booraem also told Reuters that Vanguard's "overall voting would not change much from the past," which makes sense in view of its economics-driven, case-by-case analysis; however, Walden Asset Management apparently remains dissatified with Vanguard's approach, indicating in this Statement:
By month’s end, Vanguard’s voting record will be released in its N-PX filings. The report will show that Vanguard has begun to vote for social and environmental resolutions in some cases. Yet the record of improvement is not substantial enough, as 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.
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. Vanguard shareholders should keep the pressure on the fund family to ensure Vanguard supports ESG issues through their proxy votes.