Vanguard keeps up ESG focus

Vanguard has maintained its focus on ESG issues in terms of engagement and voting, according to its investment stewardship report on the 2020 proxy season.

Figures in the report highlight the emerging picture that, contrary to some observers’ initial predictions, the Covid-19 pandemic and associated economic crisis have not lured institutional investors away from an interest in ESG matters.

For example, board composition was discussed in 70 percent of Vanguard’s engagements this year, similar to the 79 percent of meetings it featured in last year. The asset manager, which as of July 31, 2020 had $6.3 trillion in global assets under management, engaged with 258 companies in carbon-intensive industries, the same number as in proxy year 2019.

‘Specific to oversight of strategy and risk, Vanguard increased engagements with portfolio companies on matters related to climate change and diversity,’ the firm states in announcing the report. ‘Vanguard will continue to closely observe these issues in the future.’

In terms of proxy voting around US companies, Vanguard supported 27 percent of shareholder proposals on board composition matters in 2020, compared with 22 percent of shareholder measures last year. The firm voted for 9 percent of shareholder proposals on environmental and social issues, having done so on 7 percent of such proposals in 2019. It supported fewer governance-related shareholder proposals (31 percent) in 2020 than in 2019 (42 percent), however.

Overall, for the year ending June 30, 2020, Vanguard’s investment stewardship team engaged with 793 companies in 27 countries and voted on more than 168,000 proposals on behalf of Vanguard funds.

The report’s authors say the firm’s engagements with companies in the Americas this proxy year were focused on understanding how boards identify and oversee material risks such as climate and diversity-related risks, and how they disclose those. The authors note that climate-related proposals continue to be top of mind for shareholders in the US and Canada and that these take many forms, ranging from aligning long-term strategy with climate risks to seeking targets for reducing companies’ climate impact.

Vanguard says it saw a greater number of climate-related proposals outside carbon-intensive industries, such as at financial services firms where shareholders sought disclosure of climate-related risks in lending activities and, in some cases, urged firms to stop financing activities in the energy and utilities industries.

‘Vanguard expects boards to effectively oversee climate risks and become more transparent about their decision-making process through clear and effective disclosure,’ the authors write. ‘We support the use of investor-oriented frameworks, such as those developed by the Task Force on Climate-related Financial Disclosures, to enable better disclosure.’

In terms of diversity, the firm notes a shift in proposals. These have previously sought enhanced disclosure of practices and metrics at the board level, mainly around gender, but this year Vanguard noted several proposals targeting workforce diversity with a greater focus on racial and ethnic diversity.

‘[I]n 2019, we communicated to companies that our expectations regarding diversity in the boardroom go beyond gender and include racial and ethnic minority representation,’ says John Galloway, Vanguard’s newly appointed global head of investment stewardship, in the report. ‘While some companies have taken meaningful steps, too many others haven’t. We will continue to push for progress – and our expectations will evolve to reflect a growing focus on the importance of diversity across boards, leadership teams and the broader workforce.’

Galloway succeeds Glenn Booraem, who stays on the stewardship leadership team as a senior adviser while taking on additional responsibilities helping Vanguard understand client perspectives and address the changing regulatory and disclosure environment.

Galloway has been with the firm since May 2017, according to his LinkedIn profile. Before that he was a senior White House adviser during the Obama administration, a senior adviser in the Office of Management and Budget and, before that, president and COO of Atlantic Media.

In a US election year, political spending and lobbying proposals have been widespread. Vanguard says it expects such proposals to be a continuing trend with shareholders seeking transparency about how issuers align their lobbying activities with corporate strategy.

‘During this period of global uncertainty, the importance of remaining focused on the long term has never been clearer, and good governance has never been more important,’ says Anne Robinson, managing director and general counsel for Vanguard, in announcing the report. ‘Vanguard’s investment stewardship team will continue to work with companies and hold them accountable to promote and protect long-term value for our investors.’