Index fund giant Vanguard on Monday said it has narrowed support for shareholder resolutions on environmental, social, and governance (ESG) issues, backing only 2 percent of such proposals at company meetings across the United States during the 2023 proxy season.
In a report on its most recent voting history, the $7.2 trillion asset manager said this year has seen a record number of ESG proposals being brought up for a vote.
According to Vanguard, U.S. shareholders submitted a total of 359 proposals on environmental and social topics this year, an increase by almost quarter compared to 290 in the previous year.
“The funds supported just 2 percent of such proposals in the 2023 proxy year, down from 12 percent in the 2022 proxy year,” the Pennsylvania-based company said.
Many of those ESG proposals went “beyond requests for disclosure” and instead “sought specific actions from companies, including changes in company strategy or operations,” Vanguard explained, stressing that it evaluated and voted against such proposals.
Vanguard noted that 150 shareholder proposals were related to environmental matters, among which the most common subject was setting greenhouse gas emission goals. Other common proposal topics focused on climate lobbying and fossil fuel financing, according to the report.
There were also 274 proposals on social topics such as “racial equity, reproductive rights, and pay gaps, with several notable proposals in the sector concerning unionization and worker safety,” the investment firm added.
Despite the declining support for shareholders’ ESG agendas, Vanguard insisted that its approach to evaluating proposals “has been consistent over time.”
BlackRock Curbs Pro-ESG Votes
The drop in Vanguard’s support for ESG proposals follows similar disclosures by other large competitors, most notably BlackRock, the world’s largest money manager.In a report released last week, BlackRock said it backed about 7 percent of ESG proposals at company meetings in the 12 months to June, a sharp drop from last year when it supported 22 percent and 2021 when it voted in favor of nearly half.
BlackRock’s voting choices have drawn ire from progressive Democrats, who accused the company of failing to resist the pressure from anti-ESG Republicans. In Republican-led states from Texas to West Virginia, treasury officials have pulled billions of dollars in public pension funds out of BlackRock in distrust of the ESG-obssesed investment strategy.
New York City Comptroller Brad Lander, a vocal proponent of ESG investing, told the Financial Times that BlackRock was caving in to a “misinformed and shortsighted war against ESG at the behest of special interests.”
“BlackRock has a responsibility to use its votes to send a clear and consistent message regarding the need to manage climate-related and human-capital related risks,” said Mr. Lander, who vowed to integrate ESG metrics into the management of the Big Apple’s $248 billion pension funds.
BlackRock denied the claim that political pressure influenced its ESG voting, saying in a statement that its decisions were made “solely to advance the financial interests of our clients.”
“For clients who would like to play a more active role in proxy voting themselves, we also have led the industry in providing them that option through our Voting Choice initiative,” it added.
In June, BlackRock CEO Larry Fink said he will no longer use the term “ESG,” which he said has been “weaponized by the far-left and the far-right.”
“I don’t use the word ESG anymore, because it has been entirely weaponized,” Mr. Fink, an advocate of so-called socially responsible “stakeholder capitalism,” said in an interview at Aspen Ideas Festival in Colorado.
Vanguard Leaves Climate Pact
In 2021, Vanguard joined the Net Zero Asset Managers (NZAM), an alliance of asset managers committed to push the industry toward net-zero greenhouse gas emissions by 2050. As of November 2022, NZAM had 291 signatories representing about $66 trillion worth of assets under management.On Dec. 7, 2022, Vanguard announced its departure from NZAM, saying there had been confusion about the applicability of net-zero approaches to the diversified index funds favored by the company’s clients.
“Therefore, after a considerable period of review, we have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors,” Vanguard stated.
The decision to leave the environmentalist pact was largely seen as prompted by a November 2022 letter, in which attorneys general of 13 Republican-led states Vanguard urged the Federal Energy Regulatory Commission (FERC) to block Vanguard from buying shares in publicly traded electricity providers due to the firm’s history of “environmental activism.”
“The groups Vanguard joined (despite Vanguard’s specific commitments to the commission) aim to shift global electricity production from natural gas and coal from approximately 67 percent of global electricity to approximately zero percent,” the attorneys general wrote. “This will undoubtedly affect the cost and reliability of energy supplies.”
The attorneys general represented Alabama, Arkansas, Indiana, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Ohio, South Carolina, South Dakota, Texas, and Utah.
“Vanguard’s own public commitments and other statements have at the very least created the appearance that Vanguard has breached its promises to the commission by engaging in environmental activism and using its financial influence to manipulate the activities of the utility companies in its portfolio,” they added.
In May, the FERC said it has granted Vanguard’s request to continue buying big stakes in U.S. power utilities, but didn’t refer to concerns raised by the Republican attorneys general.
