**Why Vanguard Group Inc. Is Rejecting Shareholder Environmental and Social Proposals**
*Introduction: Understanding Vanguard’s Recent Actions*
In a surprising turn of events, Vanguard Group Inc., one of the largest wealth management giants, has only supported 2 percent of shareholder environmental and social proposals this year. This figure represents a significant decline from the 12 percent it backed in 2022. The sudden shift in voting patterns among major asset managers like Vanguard, BlackRock, and State Street has raised eyebrows and sparked debates about the role of these institutions in influencing corporate behavior. Let’s delve deeper into the reasons behind Vanguard’s decision and explore the implications it has for the broader environmental, social, and governance (ESG) landscape.
**An Increase in Overly Prescriptive and Far-Reaching Proposals**
According to Vanguard, the decline in its support for shareholder resolutions can be attributed to the rise in proposals that the firm considers “overly prescriptive” and far-reaching. The company believes that many resolutions this year went beyond reasonable disclosure requirements and instead called for specific actions by companies, including changes in strategy or operations. Such demands, Vanguard argues, encroach on the decision-making authority of boards of directors and management teams. As a result, Vanguard sees these proposals as potentially detrimental to the long-term investment returns of both the company and its shareholders.
**A Sharply Dwindling Support Trend**
Vanguard’s declining support for shareholder resolutions is not an isolated phenomenon. Other major asset managers, like BlackRock and State Street, have also experienced similar downward trends. BlackRock, the world’s largest investment manager, reported a decrease in backing environmental and social proposals from 22 percent last year to a mere 7 percent in the 12 months leading up to June. This decline is noteworthy considering that these three asset managers collectively control between 15 and 20 percent of most large US public companies. The combined influence of Vanguard, BlackRock, and State Street in shaping corporate behavior is immense, making this trend a topic of significant concern.
**ESG Investing and Political Polarization**
The decline in support for shareholder proposals comes at a time when ESG-focused investing has become highly politicized. The increasing influence of environmental, social, and governance factors in investment decisions has drawn significant attention and criticism from Republican lawmakers. As a response to these criticisms, Vanguard echoes complaints from other asset managers, claiming that recent policy changes by the US Securities and Exchange Commission have made it more challenging for companies to block shareholder proposals that could be considered as micromanagement. The intersection of ESG investing and political polarization adds another layer of complexity to the debate surrounding shareholder resolutions.
**The Rise of ESG Proposals and Vanguard’s Stance**
This year witnessed an unprecedented surge in ESG-related proposals being put to a vote by shareholders. Vanguard reported that the total number of US environmental and social proposals increased significantly, reaching 359 compared to 290 in 2022. Among these proposals, the number specifically addressing environmental risks soared by 50 percent, reflecting growing concerns regarding emissions targets and fossil fuel financing. While Vanguard expressed support for proposals that identified material risks to companies, it remained steadfast in its refusal to back resolutions that went beyond reasonable disclosure requirements.
**Other Factors Influencing Shareholder Resolutions**
Vanguard’s decision to reject the majority of shareholder environmental and social proposals is not solely driven by a belief in the independence and authority of corporate boards. The wealth management giant also cited the growing amount of information that companies now disclose regarding their environmental and social risks. With companies becoming more transparent about their practices, Vanguard suggests that shareholders have increasingly focused on corporate operations and voting. This change in shareholder behavior reflects a heightened awareness and interest in ESG factors, contributing to the rise in shareholder resolutions.
**Vanguard’s Support for Corporate-Backed Proposals**
While Vanguard holds a firm stance against most shareholder environmental and social proposals, the company does not completely disregard corporate management-led initiatives. In fact, Vanguard has expressed support for 94 percent of the environmental and social proposals put forward by corporate management this year. The key distinction lies in Vanguard’s belief that these proposals strike the right balance between identifying material risks and avoiding encroachment on corporate strategy and operations. Vanguard emphasizes the importance of allowing boards of directors and management teams to decide on the best strategies and tactics for maximizing long-term investment returns.
**Looking Ahead: The Future of Shareholder Resolutions and ESG Investing**
The declining support for shareholder resolutions from major asset managers like Vanguard raises questions about the efficacy of this avenue for influencing corporate behavior. As the ESG landscape continues to evolve, finding common ground between shareholders, asset managers, and corporations becomes increasingly challenging. While shareholder proposals have played a crucial role in highlighting environmental and social concerns, the recent decline in support suggests a need for recalibration and reassessment. Moving forward, it remains to be seen how the relationship between shareholders, asset managers, and corporations will evolve, and what impact this will have on the broader ESG investing landscape.
**Summary: Vanguard’s Pivot Away from Shareholder Environmental and Social Proposals**
Vanguard Group Inc., a major wealth management giant, has shifted its stance on shareholder environmental and social proposals. The decline in its support stems from an increasing number of resolutions that Vanguard deems overly prescriptive and far-reaching. This trend is mirrored by other major asset managers like BlackRock and State Street. The rise of ESG investing and its intersection with political polarization adds a layer of complexity to the debate surrounding shareholder resolutions. Vanguard’s refusal to back proposals that encroach on corporate strategy and operations aligns with its belief in the authority of corporate boards. Despite this pivot, Vanguard remains supportive of environmental and social proposals initiated by corporate management. As the ESG landscape continues to evolve, finding common ground between shareholders, asset managers, and corporations becomes increasingly crucial.
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Vanguard supported only 2 percent of shareholder environmental and social proposals this year due to an increase in the number of resolutions that the wealth management giant considers “overly prescriptive” and far-reaching.
The small percentage of votes for such proposals during the 2023 delegation season fell precipitously from 12% in 2022, he said Monday.
Vanguardwith assets of $7.2 trillion, said many of the shareholder proposals this year went too far, such as calling for “specific actions by companies, including changes in company strategy or operations,” or were redundant.
The sharp drop in Vanguard’s support for shareholder resolutions follows similar revelations from other big asset managers like BlackRock and State Street.
BlackRock, the world’s largest investment manager, reported last week that it had voted in favor of approx 7 percent of all environmental and social proposals in the 12 months to June, down from last year, when it backed 22%, and 2021, when it backed nearly half.
The decline in support for shareholder proposals is significant: Together, BlackRock, State Street and Vanguard control between 15 and 20% of most large US public companies due to their huge index products and investment funds.
The change comes at a time when investing based on environmental, social and governance factors has become highly politicized and asset managers have come under attack from Republicans.
Vanguard echoed complaints from other large asset managers that recent policy changes by the US Securities and Exchange Commission have made it more difficult for companies to block shareholder proposals, including those that “could be considered ‘micromanagement’”, the group said.
A record number of ESG proposals were put to the vote this year, according to Institutional Shareholder Services, the proxy advisor.
The total number of U.S. environmental and social proposals offered by shareholders increased significantly this year to 359, up from 290 in 2022, Vanguard said in a report on its voting record.
The number of shareholder proposals specifically addressing environmental risks has soared this prosecutorial season, the wealth manager said, up 50% to 150 from 100 during the 2022 prosecutorial season. this was the setting of targets for emissions and the financing of fossil fuels.
In December Vanguard left the main financial alliance who tries to push companies to tackle climate change, saying he prefers to tackle the issue independently.
During the environmental and social ballot, the fund manager voted on 274 proposals that were at least partially related to social issues, addressing racial equity, reproductive rights, unionization, worker safety and the pay gap.
Vanguard attributed the increase in shareholder interest in corporate operations and voting to the growing amount of information about environmental and social risks companies now disclose.
In contrast to its actions on shareholder proposals, Vanguard has voted in favor of 94 percent of the environmental and social proposals made by corporate management this year.
The fund manager said that while some shareholder proposals identified “material risks” to the companies, they “did not support proposals that went beyond disclosure and encroached on corporate strategy and operations.”
Vanguard said, “We continue to believe that strategies and tactics to maximize the long-term investment return of a company and its shareholders should be decided by the board of directors and management team.”
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