Vanguard now engages with more than 700 companies – up c.60% in four years

Passive investment giant issues stewardship report

US funds giant Vanguard engaged on $1.6trn worth of its equity assets last year, ramping up its engagement efforts by 63% from 2014, its latest annual stewardship report reveals.

It is the first report under its new CEO, Tim Buckley, who took over from Bill McNabb in January. The former Chief Investment Officer is only Vanguard’s fourth CEO since it was founded in 1975.

The $5.1trn passive manager revealed it engaged with 721 companies across 24 countries over the last year, making 168,786 votes at company meetings.

Its 2018 Investment Stewardship Annual Report also details several of Vanguard’s engagements around climate, including one with an unnamed Canadian energy company, who came to support a climate risk shareholder proposal following a “productive discussion” with Vanguard.

It also discusses another shareholder proposal – “ultimately” supported by Vanguard – with a US industrials company asking it to set and disclose targets for greenhouse gas emissions.

In total, Vanguard engaged with 200 companies in carbon-intensive industries, increasing its support for environmental disclosure proposals to 11 out of 76, from two out of 92 a year before.

Controversial issues such as guns and the opioid epidemic were also subjects of engagement. Vanguard engaged with three publicly owned gun manufacturers and supported one shareholder proposal calling for greater risk disclosure.Eight drug manufacturers, drug distributors, and pharmaceutical companies were also engaged with over the escalating opioid crisis in the US.

Interestingly, Vanguard reports fewer proposals around gender diversity on boards in the 2018 proxy season but revealed it supported four out of nine proposals on the issue.

“A long-term focus also underpins the work of our Investment Stewardship team, which advocates, engages, and votes on behalf of each of our funds’ investors,” said Buckley.

“I’ve been encouraged by the growing number of conversations in recent years about long-termism. This means looking far beyond the next few quarters or the next few years and focusing instead on the creation of value aligned with our clients’ ultimate goals of retirement, education, a home, or financial security.”

Vanguard added to its stewardship team this year with the appointment of Adrienne Monley as Head of Investment Stewardship, Europe in February.

Elsewhere, questions around the potentially catastrophic impact on markets that the growing shift to passive investment by investors might have has been raised in an article by Forbes, exploring new research on the subject.

The article questions how markets can function without active managers rewarding good corporate governance and punishing the bad, it quotes Vanguard’s founder, John Bogle who said “If everybody indexed, the only word you could use is chaos, catastrophe. The markets would fail.”