Vanguard says its patience with firms on climate change is “running short”

Investment giant hints it may increase support for climate-change related proposals

Vanguard’s patience with companies on climate action is “running short” and it expects to “be very intentional about voting” on the subject this year, the firm’s Head of Investment Stewardship for EMEA, Lisa Harlow, has told RI. 

Last year, Vanguard supported a groundbreaking ‘Say on Climate’ proposal filed at Spanish airport infrastructure firm Aena by activist investor and hedge fund billionaire Sir Chris Hohn. 

“We met with the Aena board to discuss the vote and their thoughts on climate,” said Harlow. “And quite candidly, we weren’t comfortable that they were where they needed to be on this topic, so we took the decision to support the shareholder proposal and were pleased to see it got 98% support and ultimately management adopted it.”

But, more broadly, Vanguard has been in the spotlight for its low support for climate-related proposals compared to its peers. In a recent report, ShareAction found that Vanguard supported just 15% of climate-related proposals last year, while other asset managers dramatically increased their support over the period. JP Morgan, for example, backed 51% of relevant proposals in 2020 – up from just 7% the year before.  

The NGO noted “a disappointing trend” of asset managers justifying their poor voting performance on the basis that they preferred to engage privately, or that the company was already ahead of its peers.

“I think being judged on our voting is one thing,” reflected Harlow, adding that voting decisions are “deeply researched” and “based on what we think is the right thing for the long-term success of shareholders”. But, she said, “We’d like to be judged on our engagement too.”

Vanguard’s most recent stewardship report says its global team engaged with nearly 800 companies across 27 countries and voted on more than 168,000 proposals on behalf of Vanguard funds. Engagement on board composition comprised 70% of engagement activity, followed by executive compensation comprising 47%. The team also engaged with 258 companies in carbon-intensive industries, or 33% of total engagements.

Harlow said one of Vanguard’s top engagement themes this year will be “pandemic resilience” – looking at areas such as employee safety. Last month, the firm voted  against the reelection of Director Robert Thurber, Chair of Tyson Food’s Governance and Nominating Committee. Tyson has been at the centre of a scandal over how it handled worker safety during the pandemic – an issue that the Governance and Nominating Committee is responsible for overseeing.

Vanguard supported two other proposals at Tyson: one asking the board to prepare a report on the company’s human rights due-diligence process, and another focused on annual disclosure of the company’s lobbying policy, procedures and spending. 

Harlow said its approach at Tyson demonstrates “the escalation process for engagement and voting”. 

“We’ve been talking to Tyson for a couple of years now on some of these issues, researching and making a choice. This year, the team looked at the risks that were associated with Tyson’s behaviours. There are concerns about the pandemic and they were not thinking about their workforce in the right way. So it exacerbated the situation. 

“This was Vanguard very much saying we are not comfortable with your risk oversight here and we are now acting forcibly to hold you to account. We talked to you about this and you did not make progress.”

Diversity and climate change will also be engagement themes for Vanguard this year. 

“It is really important that we don't take the foot off the gas because of the pandemic,” Harlow said. “The pandemic has had an impact in both of those areas. In some ways it's accelerated plans on climate transition for some companies and we're really mindful that, for diversity and inclusion, there are some challenges with the pandemic. We've seen a range of headlines about the impact on women and different communities. Ensuring that companies are still driving forward on those areas of inclusion and diversity and thinking about diversity in the workforce is important to us. It's going to be a key theme for this AGM season.”

Vanguard is notable for its absence from massive shareholder engagement network Climate Action 100+. Now that BlackRock and State Street have joined the initiative, which coordinates collaborative engagement with some of the world’s most polluting companies, Vanguard is the last of the ‘Big Three’ not to sign up.  

“With Climate Action 100+ we are very aligned on some of the areas they focus on,” said Harlow. “They do some great work,” She added that Vanguard would continue to evaluate its position as it does with other organisations. 

“But at the moment we have lots of very impactful conversations with companies about climate, which I think are appreciated from a large investor.”

Harlow said Vanguard engaged with companies on SASB and TCFD disclosures.

 “We need data that is comparable….it’s a really great way to improve disclosure and have decision-useful information in the market, not just for us, but for all interested parties”.

But Vanguard will also be on the receiving end of resolutions this year. It is facing a proposal filed by Boston Trust Walden Company which asks it to review and report on ESG proxy voting. Boston has filed the same proposal for a number of years.  

Last month, Vanguard appointed its first-ever head of ESG