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Largest Fund Manager Remains Resistant to Shareholder Action on Climate

Dale Wannen headshotWords by Dale Wannen
Investment & Markets
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According to a recent Stanford University study, temperature change from global warming could lower global GDP by about 23 percent per capita by 2100. That would mean a lot less money in the corporate coffer and the chance of stock prices dropping significantly in the decades to come.  So, why isn’t big money joining in the fight against climate change?

As many of us know, Vanguard is a U.S.-based investment company that manages about $3.5 trillion. Yes, that's trillion with a T. It is the largest provider of mutual funds and the second largest provider of exchange traded funds (ETFs), holding about 10 percent of the value of the U.S. stock market. Investors in Vanguard funds own at least 5 percent of the stock in big companies like Nike and Starbucks. But as Barron's reported last month, Vanguard failed to support any of the approximate 200 climate-related shareholder proposals filed this year.

For those new to the world of shareholder proposals and proxy voting, every year shareholders present companies with certain proposals that are meant to bring awareness. The topics range from animal cruelty to CEO compensation to sustainable reporting.  For example, in 2015 shareholders asked fumbling natural gas company Chesapeake Energy to publish a climate change report and how it could affect the revenue of the company.  Considering Oklahoma just experienced a 5.8-magnitude earthquake this week near key fracking sites, one would think this should be on their radar.  Vanguard voted against this proposal.

Since 2004, U.S. mutual fund companies have been required to publicly disclose how they cast their proxy votes.  However, finding this data would certainly require a Ph.D in data mining.  Recently launched, Fund Votes is an independent project that tracks mutual fund proxy voting in the U.S. and Canada.  The website shows the percentage of support for shareholder proposals in each mutual fund company in the U.S. You can easily see that a mutual fund company like Green Century does a much better job voting its client’s shares than Wall Street darling JPMorgan.

The next logical question may be: Why is Vanguard not voting in favor of these proposals, considering there may be unforeseen costs involved with how companies address climate change?

Like any of the behemoth money-management firms out there, conflicts of interest may exist -- particularly because Vanguard manages money for companies via their 401(k) and retirement plans, posited Barron’s reporter Lewis Braham. Ask any friend or colleague, and most likely their 401(k) is managed by Vanguard or Fidelity.  In return for managing these plans, companies collect many millions of dollars.  If Vanguard were to vote for a shareholder proposal on one of its client’s proxies, this could lead to the “degradation” of such a relationship.

We shall see how this plays out in the years to come as investors demand that Vanguard vote its investment dollars and climate change becomes primary with metropolises like New York City, which is literally sinking into the ocean. By the time Generation Z or the appropriately named "iGeneration" hits retirement in 2100, Vanguard may have to put climate change shareholder proposals at the top of its priority list to simply exist as a business.

Image credit: Pexels

Dale Wannen is founder of Sustainvest Asset Management, a Petaluma, CA-based independent investment advisory firm focused on sustainable and responsible investing, shareholder activism and impact investing.  

Dale Wannen headshotDale Wannen

Dale Wannen is President of Sustainvest Asset Management, an investment advisory firm focused on sustainable and responsible investing (SRI). Prior to Sustainvest, Dale was a portfolio manager at Harrington Investments and specialized in ESG investment strategies, securities analysis, and shareholder advocacy. Prior to this position, Dale was a financial advisor with UBS Wealth Management Services in San Francisco. He is often a guest speaker on the topic of ESG investing and shareholder advocacy.

Dale has an MBA in Sustainable Management from Presidio Graduate School in San Francisco. He earned a B.A. in Economics from Rowan University and currently is a volunteer with Mentor Me Petaluma, Rebuilding Together Petaluma, and the founder of Green Drinks Petaluma.

He also currently sits as Board of Director and Treasurer of San Francisco human rights organization, Global Exchange, teaches Economics for the Oakland non-profit Game Theory Academy and is a committee member for the National Resources Defense Council (NRDC) in San Francisco. Previous volunteer work has included Treasurer and Board Member for bird conservation organization, San Francisco Bay Bird Observatory (SFBBO), committee member of the Petaluma Pedestrian and Bicycle Advisory Committee (PBAC), and President of the Social Venture Finance Club at Presidio Graduate School.

Dale currently holds the Series 65 FINRA license and has previously held the Series 6, 7, 63, 66 and California Life and Health Insurance Certification. He is a member of National Association of Professional Financial Advisors (NAPFA) and the Financial Planning Association (FPA).

Dale lives in Petaluma, CA with his wife Lauri and their Malamute Shadow.

Read more stories by Dale Wannen