Investors who manage their own assets, and are keen on vetting companies on their own, may soon start seeing more climate change-related disclosures.
Pennsylvania-based investment management company Vanguard, which says has over $4 trillion in assets under management, is urging more companies to disclose how climate change could potentially have an impact on their business performance.
The company has long enjoyed the reputation for being one of the leading go-to financial institutions for individual investors who seek to manage assets such as retirement funds without a financial advisor. Many those investors have been unaware, or refused to acknowledge, the fact that more companies are realizing that climate risks could have a significant long-term impact – but that will start to change.
Vanguard’s announcement earlier this week will send a signal to more financial services and companies, as well as public companies, that discussions about climate change are no longer a distraction pushed by “activist investors.” My most accounts, Vanguard is the largest provider of mutual funds. After BlackRock, the company is the second largest issuer of exchange-traded funds (ETFs). Vanguard has long emerged as the largest shareholder of many companies, from Ford to Caterpillar to Microsoft. That leverages gives Vanguard a considerable amount of clout when it comes to pressuring companies to develop more stringent climate change disclosures.
While the company has been criticized for not taking a firmer stand on climate change, Vanguard says it has been working with more companies, as well as their shareholders, as more proposals related to environmental and social issues are put up for a vote. Last year, the company said it had worked with a major oil and gas company in encouraging that firm’s management to disclose specifics on how it manages climate-change related risks. Vanguard says it has also partnered with companies to take steps to mitigate risks related to supply chain challenges and environmental problems such as oil spills.
In an interview with Reuters on Monday, Glenn Booraem, Investment Stewardship Officer at Vanguard, explained that the firm’s stance on climate change, as well as shareholder resolutions focused on this issue, have all evolved over time. "Our support for these proposals is not a matter of ideology, it's a matter of economics," he said to Reuters reporter Ross Kerber. "To the extent there are significant risks to a company's long-term value proposition, we want to make sure there is long-term disclosure of those risks to the market."
During proxy season earlier this year, Vanguard joined other investment companies in urging the passage of several climate risk shareholder resolutions at large energy companies including ExxonMobil and Occidental Petroleum (again, two companies where by number of shares held, Vanguard is the largest owner). Those companies’ boards resisted those proposals, urging shareholders to vote against them, but in a shock for those on both sides of the issue, those proposals ended up passing – and by a wide margin.
Vanguard is following the lead of other financial institutions that are insisting companies become more proactive when it comes to alerting current and potential investors about climate change risks. London-based Blackrock, for example, recently said that climate change is a “systemic issue” and that corporations need to work on improving related disclosures. Earlier this summer, one of the company’s management directors declared that “coal is dead” and that any investor seeking returns from that source of fuel longer than 10 years from you is “gambling very significantly.”
That news prompted at least one socially responsible investor fund to step back from its demands on Vanguard. Walden Asset Management announced that it would withdraw a shareholder proposal that had requested a review of how Vanguard voted on various companies’ proxy statements.
“We are pleased that Vanguard is championing climate risk,” the Boston-based company said. “This includes Vanguard’s proxy votes this spring supporting shareholder resolutions on climate change at ExxonMobil and Occidental Petroleum, helping drive majority votes at both companies and a high support level of 62% at ExxonMobil.”
Image credit: Arby Reed/Flickr
Leon Kaye has written for TriplePundit since 2010, and became its Executive Editor in 2018. He's based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas. He's lived in South Korea, the United Arab Emirates and Uruguay, and has traveled to over 70 countries. He's an alum of the University of Maryland, Baltimore County and the University of Southern California.