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Engaging with Vanguard on the Climate Emergency
As I’ve mentioned before, finding out more ethical investments has been on my priority list this year. So much so that I enrolled in a university summer course on sustainable finance, spending three glorious weeks doing a deep dive on financing mechanisms for a green transition, visiting key financial institutions like the Bank of England and huge investment and commercial banks, and discussing the growth and impact of ESG investing.
The course helped to lift the curtain on what the banks are thinking and doing about the climate crisis. It’s clear that after years of dragging their feet and ignoring the issue, the finance sector is finally getting its act together. The speed of change has been rapid, helped in part by Mark Carney’s warnings around climate risk, growing demand for ESG products, and greater public pressure for the sector to act. There is a flurry of work being done on assessing climate risk and measuring the carbon footprints of portfolios. While I found these developments encouraging, I ultimately came to the conclusion that while the finance sector is moving in the right direction, it is nowhere near enough to prevent us from moving towards a world of 3-4ºC warming. The consequences of anything over 1.5ºC are already terrifying.
I went into the course disenchanted and cynical about climate activism, but came out with a belief that activism is key to forcing through urgent climate regulation and putting pressure on the powerful finance and corporate sectors to act in accordance with the climate science.
However, the week directly after my course finished, I started a new 9-5 job. The last two months have been spent adjusting to my new reality: two hours of commuting each day, a new and challenging role, and attempting to maintain a healthy personal and social life. Adding in a new volunteer role with Extinction Rebellion, little time was left to really think about my role as a retail investor and how I should also be using the information from the course to inform my investments.
The recent Guardian series, The Polluters, reminded me to revisit the topic. Especially as this article – which names Vanguard as one of the top three asset managers overseeing fossil fuel investments – states that “Vanguard opposed or abstained on more than 80% of climate-related motions at FTSE 100 and S&P 500 fossil fuel companies between 2015 and 2019.” I had intended to write to Vanguard earlier in the year to ask why I couldn’t find a Vanguard ESG fund that didn’t include ExxonMobil, however laziness won out.
Not so this time. I rolled my sleeves up and decided to use my voice as a Vanguard investor to finally engage.
I’ve been a modest investor with you since 2013, first buying into your funds through my ISA, and as of this year, through my SIPP as well (both held on other platforms).
Throughout these years, I’ve admired the low-cost, no-nonsense services you’ve provided. But I’ve also been highly conflicted by the idea of my money financing dirty energy companies through your index funds.
I tried to look into ESG Vanguard products earlier this year, and came across your SRI funds. I was filled with hope until I looked at the Top 10 Holdings – which includes ExxonMobil – and wondered how it could be that an SRI fund would include a company that has literally been spreading disinformation about the climate crisis to promote business as usual, despite knowing that burning carbon would lead to dangerous and irreversible changes to the climate with devastating consequences.
I brushed aside my discouragement and continued investing with Vanguard (while also adding some sustainable impact investments to my portfolio), because I believed that you were just a benign passive investor into the market. But today, in the Guardian, I see that you have either opposed or abstained on over 80% of climate-related stakeholder motions at fossil fuel companies over the past few years. You are perhaps not as benign as I presumed.
Your apparent response is that, “We regularly engage with companies on our shareholders’ behalf and believe that engagement and broader advocacy, in addition to voting, can effect meaningful changes that generate long-term value for all shareholders.”
Where in the 80% of your non-action/opposition are you actually representing the long-term value of us, the shareholders? What meaningful changes are you aiming for, if four out of five times you abstain, or even worse, oppose climate action? You must know, logically, that our investments are the least of our worries if we continue with business as usual. Inaction is a huge risk, but actively supporting fossil fuel companies is reckless stupidity.
I ask you as a customer to use your power as one of the top three asset managers to actively engage with fossil fuel companies to force a phase out of fossil fuel extraction and to meaningfully invest in alternatives – rather than just pay lip service to it. I also ask you to develop products for investors like me, that would like to remain a Vanguard customer, but prefer not to see our money fuel such a damaging and polluting industry.
I look forward to hearing your response.Regards,
Thank you for your message and I hope you had a nice weekend.
Lack of support for a proposal does not indicate Vanguard’s lack of attention to the issue. Rather, our response to the specific content of that specific proposal, and whether we believed it was well placed at that company. We believe that climate risk can potentially have a long-term impact on companies in many sectors. In fact, beyond voting on these proposals, in the last proxy year our team engaged with over 200 companies in carbon intensive industries and conversations about climate risk oversight and disclosure are a regular part of our engagements with companies across a range of sectors.
In relation to specific shareholder proposals, including those relating to climate, we analyse these on a case by case basis. Through our research and analysis, we seek to determine whether and how we believe support for the proposal is material and aligned to the long-term financial interests of the Vanguard funds. If our analysis concludes that support for the shareholder proposal aligns with the long-term financial interests of our shareholders, then we will support. Our index funds, by design, generally hold all the companies in their benchmark; these include winners and losers, leaders and laggards. This ownership across the spectrum gives us the opportunity to influence investor outcomes by directly engaging about material environmental and social risks with directors and executives at the companies in which our funds invest.
We appreciate the increasing importance to provide products and services which address issues such as climate change. Our commitment to this can be seen in our ESG fund offerings in the United States, as well as our strong presence on many companies’ boards through our investment stewardship efforts. If you are interested in reading more about our investment stewardship activities, we produce a report which you can see here:
We have also released an article recently for our clients which you might like to read:
o.uk/articles/latest-thoughts/ how-it-works/your-portfolio- and-your-principles
At this stage, Vanguard have only a small presence in the UK and Europe and as such do not offer an ESG fund that excludes fossil fuel at this point in time. We are continually looking at our range of fund offerings and listening to client feedback as we look at options for future funds, but are unable to speak about specific timeframes regarding any new products. Our executive group and boards of directors are an integral part of the product design process. Any new funds that we do launch must be consistent with our long term approach to launching and managing funds.
I hope this helps and we wish you all the best in your future investing.
Personal Investor Services
While receiving a response from Vanguard less than 24 hours after my original email impressed me, the content and links provided certainly didn’t. So I wrote another:
Thank you for your quick reply to my email enquiry.
However, from your response, I’m still unconvinced that Vanguard is acting in-line with the climate science presented by the IPCC that urges us to act on climate change now.
While I am encouraged to read that Vanguard supports the TCFD, seeing that you only supported 11 out of 76 environmental disclosure proposals last year is disheartening. Climate risk doesn’t “potentially” have a long-term risk for companies as you assert below. Rather, the wide-reaching impacts of the climate crisis will leave no business untouched. Supporting ALL companies to disclose the transition, liability and physical risks that climate change poses to their business is therefore common sense and is ultimately in the best interest of shareholders. Furthermore, saying that you engaged with 200 companies in carbon-intensive industries is devoid of any meaning. It says nothing about the type of engagement you are having with these industries, and whether you are actively encouraging them to transition their business to align with the 2ºC climate goal.Vanguard has been an inspiring trailblazer in the market for low-cost passive funds that firmly keep customer interests at the heart of company. It would be great to see that same passion and conviction applied to the huge challenge we are facing with the climate crisis – for the sake of the millions in the global south already facing the brunt of climate change, for the species on our planet facing extinction, and for those of us who would modestly like to retire in a world that isn’t burning.
As I didn’t pose any specific questions or requests in my second email I don’t expect to receive another response from Vanguard. And I certainly don’t expect my angry emails to spur immediate action on climate change. However, I do wonder how many Vanguard customers have emailed them about this issue, and whether collectively we can make a difference. As Vanguard customers and shareholders in the fossil fuel industry, we have power, and we have voice. If more of us make that voice heard, then Vanguard must represent that voice in its engagements with fossil fuel companies.
It is for that reason I won’t be divesting from Vanguard. As a customer, I can continue to read their reports, monitor their progress, and press them when they aren’t doing enough.
If you are thinking of contacting Vanguard (or BlackRock, First State, etc.) about their inaction on the climate crisis, feel free to adapt from my emails above. For UK Vanguard customers, the email address is Personalinvestors@vanguard.co.uk.