Vanguard, the world’s largest asset manager, has cut its support for shareholder resolutions on environmental, social, and governance (ESG) issues. The Pennsylvania-based firm supported just 2% of such resolutions in 2023, down from 12% in 2022.
Vanguard said the decline reflected a rising number of proposals, coupled with improvements in company disclosure that made many resolutions unnecessary. The company also noted new securities regulations that make it harder for companies to leave questions off their ballots./
In its regional brief, Vanguard said many resolutions sought changes that might not be needed. “In some cases, we identified that although a proposal raised a material risk at the company in question, the board had already demonstrated appropriate oversight of the risk and evidenced its oversight through robust disclosure or had practices in place that substantially fulfilled the proposal’s request,” Vanguard said.
Vanguard’s decision to cut its support for ESG shareholder resolutions is likely to disappoint many environmental and social activists. However, the company said its approach to evaluating shareholder proposals “has been consistent over time.”
“Our focus remains on identifying proposals that address financially material risks at a given company, supporting proposals that may fill gaps in the company’s current practices (while not intruding on company strategy and operations) and providing sufficient latitude to the company on implementation,” the company said.
The decline in support for ESG shareholder resolutions may be part of a broader trend. BlackRock, the world’s second-largest asset manager, said it backed the mostly-advisory measures just 7% of the time in 2023, down from 22% last year.
Together, BlackRock, Vanguard, and State Street control between 15% and 20% of most large US public companies through their huge index-tracking products and investment funds, so their influence is enormous.
Despite this, recent research from Aviva Investments found that ESG and sustainable investment have been the “biggest structural trend in the investment industry in recent years.” The research found that ESG assets under management have grown from $10 trillion in 2012 to $35 trillion in 2022.
However, more than 70% of all assets may be invested in funds with above 2.3 ºC alignment, far outstripping the level of warming that scientists say is necessary to avoid the worst effects of climate change.
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