About 40,000 individual investors in Vanguard Group’s index-tracking funds participated in a pilot program that allowed them to make their viewpoints known on important issues facing shareholders.
Roughly 25% of them opted to vote their shares in line with recommendations from proxy adviser Glass, Lewis & Co. on ESG-related issues such as better climate disclosures. By contrast, the vast majority of participants in the pilot decided to stick with whatever the companies or Vanguard’s stewardship team were advocating.
In the latest proxy season, Vanguard reported that it didn’t back any environmental or social resolutions filed by outside shareholders. The results indicate the program had little sway in changing the overall vote count as it relates to ESG matters during a period of Republican-led pushback against the investment strategy.
John Galloway, Vanguard’s global head of investment stewardship, said the program has succeeded in giving clients a voice in the voting process. The firm plans to add more US equity index funds over time, so that more individual investors can “align their investment portfolios with their personal preferences,” he said.
“We’re committed to continuing to empower investors by expanding access to the proxy voting process,” Galloway said.
The pilot program was open to a total of two million individual investors in five equity index funds that have combined assets under management of more than $100 billion.
One of the funds included was the Vanguard ESG US Stock exchange-traded fund (ticker: ESGV). More than three quarters of the ETF’s investors who participated in the pilot program backed Glass Lewis’s guidance, Galloway said. The example shows how investors with specific interests are making their positions heard through the proxy process, he said.
In the pilot, investors were given four options: They could vote in accordance with what the companies’ boards are recommending; they could support what Vanguard’s stewardship team is advocating; they could decide not to vote at all; or they could back Glass Lewis’s stance on environmental, social and governance shareholder resolutions.
Vanguard said Tuesday that 30% of the 40,000 investors opted to stick with the companies’ recommendations, 43% went with Vanguard’s team, 2% decided not to vote and 24% aligned their voting with Glass Lewis.
“Vanguard is showing that it’s giving its clients options and not forcing them to simply follow the firm’s voting policy,” said Rob Du Boff, senior analyst at Bloomberg Intelligence. “The reality, however, is that it’s having little impact for now on changing the overall vote tally.”
BlackRock Inc. and State Street Global Advisors also allow investors in index funds to direct the proxy voting of their shares. Clients representing more than $630 billion of assets under management are participating in BlackRock’s Voting Choice program and the firm said it’s expanding its stewardship options.
Like at Vanguard, the approval of environmental and social proposals declined at BlackRock. The firm voted for 4% of the proposals in the 12 months ended June 30, down from 7% a year earlier.
The drop in support represents “a yawning gap between what many leading asset owners think and how big managers are voting on resolutions,” said Heidi Welsh, executive director of Sustainable Investments Institute. “It’s not like climate change management has become less material in the last two or three years, or that fundamental demographic shifts that drive human capital and diversity management have changed.”
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