The two votes against Exxon and Occidental management contrast with votes against shareholders of Noble Energy, Marathon Petroleum, Devon Energy and Chevron, who had also put forward proposals to require climate reporting. (Vanguard also voted against requiring Warren Buffett’s Berkshire Hathaway to report on climate and divest from fossil fuel holdings.)
A Vanguard spokeswoman said its decisions have more to do with how the shareholder proposals are worded and not the fund company’s commitment to climate policy among its holdings. “While we believe the issue is real, we may not believe the proposal meets our threshold for support.”
Vanguard, the world’s largest index mutual fund manager — which has amassed a remarkable share of retail investor assets in the U.S. through index mutual funds and more recently ETFs — has not been known for its shareholder activism. Vanguard took in more than $300 billion in 2016, while the rest of the mutual fund industry combined had negative flows. It manages more than $4 trillion in assets overall. BlackRock and State Street Global Advisors, two other investing giants with large exchange-traded fund businesses, have received higher marks in past years from shareholder advocates for commitment to social and environmental issues.
But this year, Vanguard began to show a little more of an activist streak in its proxy votes, beyond just climate change. The proxy records reveal that Vanguard voted against three Wells Fargo directors, notable given the crisis the bank still finds itself in, with the latest development on Thursday an acknowledgement from the bank that its fake accounts scandal is much larger than previously disclosed. While the company previously said that proxy votes would show its overall voting profile did not change much year over year, it did change considerably with board of director issues.
Vanguard voted in favor of 47 percent of shareholder measures related to board of directors, versus supporting only 17 percent of those measures last year.
“We voted on the dissident card more frequently,” the Vanguard spokeswoman said. She provided several reasons for that shift in favor of shareholders and against management: Vanguard voted for many gender and diversity measures to be in sync with a new shareholder policy it implemented in April; there were also less measures put forward this year from shareholders asking for independent chairman positions at companies, which helped to raise the percentage of shareholder measures the fund company supported.
It voted for dissident shareholders in at least one notable case, casting votes for activist investors to join the board at Buffalo Wild Wings board. While long-term mutual fund investors like Vanguard have not been known for shareholder activism, there have been some recent examples of long-only managers banding with activist hedge funds to seek change at portfolio holdings.
Along with the release of its proxy votes, Vanguard issued a letter from its chairman to companies and report from its Investment Stewardship group detailing its approach to engaging companies, and at times, voting against management.
One point that Vanguard stressed in its climate position is that policy is dictated by the investment risk, not politics, of the issue. That has been cited as a reason Vanguard was slow to adopt a stronger policy.
Earlier this year, Vanguard founder Jack Bogle told an audience at the Morningstar conference that when it came to environmental, social and governance issues, “I have felt for long time people laughed at first and they are not laughing anymore. Index funds and managers are the key to strong corporate governance.”
Bogle went on: “The index manager can’t sell the stock, what can he do? Improve the management. Index funds, including Vanguard, right now are asking for a lot more information.”
The head of the company’s Investment Stewardship officer, Glenn Booraem, tried to thread the needle in the report released Thursday: “We acknowledge that our clients’ views on climate risk span the ideological spectrum. But our position on climate risk is anchored in long-term economic value—not ideology. Regardless of one’s perspective on climate, there’s no doubt that changes in global regulation, energy consumption, and consumer preferences will have a significant economic impact on companies.”
Booraem had previewed the policy shift in interviews with the press in mid-August, when Vanguard announced it had resolved its own shareholder battle — Walden Asset Management decided to not proceed with shareholder resolutions against Vanguard over issues including climate and diversity, after the fund giant detailed its plans to announce several proactive governance measures.