Vanguard says shareholders can vote for profits over ESG issues
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Vanguard is giving retail shareholders the chance to vote in favour of putting profits above all else as it doubles the size of its experiment with letting more investors have a say on proxy votes.
Nearly 4mn people controlling up to $250bn in shares in US companies will now be able to chose one of five options, which also include letting Vanguard make the decision, voting with management, prioritising environmental, social and governance factors or in effect voting “present”.
The addition of a profits-above-politics option comes as Vanguard and other large asset managers try to navigate a conservative backlash against ESG without angering customers who remain committed to fighting climate change and social inequality.
“It’s a response to feedback from investors,” said John Galloway, Vanguard’s global investment stewardship officer. “Investors have different perspectives on what they believe maximises shareholder value.”
Vanguard, which has $10.1tn in assets, drew criticism from progressive campaigners earlier this year when it announced that it had voted against every single environmental and social proposal on US shareholder ballots this year. But it and other index fund managers remain in the crosshairs of conservatives who contend that money managers are using their large shareholdings to foist “woke capitalism” on American companies.
Eight Vanguard funds will participate in the voting choice programme in the coming proxy season, three more than in 2023-24, although they still do not include the company’s biggest funds, those that track the S&P 500 and the total US market.
The Pennsylvania-based fund manager said it was also working towards letting investors who own their shares through retirement accounts to participate, which would vastly expand the programme’s potential reach. Three times as many US investors own mutual funds through retirement accounts as through other means, according to the Investment Company Institute.
Vanguard’s big index fund rivals are also in the process of giving clients greater control over shareholder votes.
BlackRock’s Voting Choice programme started with institutional clients and added its first individual investors earlier this year. The owners of $2.8tn in equity assets are eligible to chose between letting BlackRock vote for them or 16 other policies. The owners of roughly one-quarter, or $634bn, have made a selection.
State Street Global Advisors’ voting programme has 10 options, including letting SSGA make the choice and not voting, and it is available to $1.7tn in assets, including all of the group’s US-based index mutual funds that invest in American equities.
The effort to hand off responsibility comes at a time when BlackRock and Vanguard are in the crosshairs of regulators at the Federal Deposit Insurance Corporation because their index funds own such large stakes in many US banks. The FDIC is considering whether to require additional scrutiny when the fund managers hold 10 per cent or more of a lender. SSGA is part of the custody bank State Street and already subject to oversight by banking supervisors.
It is not clear whether the voting programmes will help get the fund managers off the hot seat. So far, nearly half of Vanguard investors who expressed a preference have told the fund company to use its best judgment and vote for them.
