Vanguard gives fund shareholders some proxy-voting power

Republicans have criticized the big asset managers over their proxy-voting practices.

Vanguard started Wednesday giving fund investors some say in proxy voting for shares they own in portfolio companies.

The pilot program, announced in November, applies to the firm’s $6.4 billion S&P 500 Growth Index Fund, $5.5 billion Russell 1000 Index Fund and $5.7 billion ESG US Stock ETF.

“By participating in this voluntary pilot, investors will be able to direct how the fund votes on ballot items for certain of the fund’s largest holdings, proportionate to their ownership in that fund,” the company stated on its site. “Whether held through Vanguard directly or as part of a portfolio held with another firm, eligible investors in these funds will soon receive an invitation to a secure website where they can select a proxy voting policy.”

Such ballot items increasingly include shareholder resolutions around issues such as climate risk, plastic use, and diversity, equity and inclusion, as well as wider corporate governance concerns.

Other big asset managers — BlackRock and State Street — have also indicated plans to let individual fund investors control how their shares are voted. Vanguard appears to be the first to implement such a policy at the mutual fund level, although BlackRock has been doing so for institutional clients for more than a year.

Those developments follow pressure from Republicans across the country for asset managers to shun ESG considerations in investment decisions. BlackRock has faced the most scrutiny, and even though it’s among the biggest investors in oil and gas, has been accused of boycotting fossil fuels by states including Texas.

Late last year, Republicans on the Senate Banking Committee issued a report criticizing the big three asset management firms over their proxy voting practices, alleged that each company “proudly uses the voting power gained from their investors’ money to advance liberal social goals known as ESG … and DEI.”

That report claimed that “these once benign-sounding concepts are political movements unmoored from financial performance and, perhaps not coincidentally, also popular with corporate C-suites where managers can claim ‘success’ on matters irrelevant to investor returns.”

Vanguard’s pilot program for the three funds runs from today through June 30, which covers most of the 2023 proxy season. Fund investors don’t decide how their shares vote on individual resolutions at each portfolio company — there could be hundreds or even thousands of those for the large index funds. Instead, fund shareholders select from “four different proxy voting policy options” that determine how their shares will vote generally, Vanguard stated.

The company did not immediately describe the wording of those choices, but last month it stated in a paper on its site that “proxy voting policy options under consideration for the pilot include casting votes consistent with a company board’s recommendations, relying on guidance from an independent third-party provider, asking Vanguard to continue voting on the investor’s behalf, using the funds’ proxy voting policy, or giving investors the choice not to vote.”

In December, Vanguard announced that it would end its membership in the Net Zero Asset Managers initiative. That move appeared to spare the firm from being questioned at a Texas Senate committee hearing later that month, during which BlackRock and State Street representatives were grilled on their ESG-related practices.

This story was originally published on ESG Clarity.