Insightia’s interview with Vanguard Lisa Harlow, head of investment stewardship for Europe, and John Galloway, global head of investment stewardship, in the most current issue of Proxy Monthly (page 8) provides insights into the investor’s approach toward select trending shareholder proposals, the SEC’s impending climate disclosure proposal, and more.
Notably, Vanguard evaluates racial equity audit proposals on a case-by-case basis based on its view that they are not always appropriate and may in fact create risk for a company in a manner that is inconsistent with driving shareholder value, which is its paramount objective (emphasis added):
Q: Racial equity audits were a new form of shareholder proposal that proved popular this year. Is Vanguard supportive of proposals of this kind?
A: John Galloway: We are generally supportive of companies taking action that their board believes is in the long-term interests of shareholders. We have supported shareholder proposals where the management team or board has embraced the call for a third-party racial or social justice audit. We do have concerns that these proposals could, in some respects, introduce more risks to an organization. We don’t think there is a one-size-fits-all solution here and so we look at racial audit proposals on a case-by-case basis. In some instances, we have not supported the proposal where we came to the view that it was either overly prescriptive, too broad, or misaligned with the company’s actual issues.
In some cases, we’ve seen racial equity audit proposals where the proponent themselves acknowledged that the company is a leader in this topic but believes they can do more – that’s not the approach Vanguard takes. We don’t tend to support those proposals in that we have no agenda other than driving shareholder value. So, when a proposal looks like it’s overly broad or when a proponent says it’s about a broader societal issue, we tend to not support those proposals.
Also noteworthy is Vanguard’s view that it is premature for regulators to mandate companies' Scope 3 GHG emissions disclosure and that the SEC should provide safe harbors for companies seeking to make such “full” emissions disclosure to address their concerns about legal or regulatory risk (emphasis added):
Q: What would Vanguard like to see featured in the SEC’s upcoming climate change disclosure policy?
A: John Galloway: We did submit a comment letter to the SEC back in June outlining our views and we appreciated the opportunity to give that input on what would serve as useful forms of climate disclosure. We believe that effective disclosure should, at a minimum, include baseline quantitative disclosure of Scope 1 and 2 emissions. We also suggested implementing supplementary qualitative disclosures to allow us to inform investment stewardship decisions where there is acute climate risk.
Given the uncertainty about investor approaches and target-setting for Scope 3 emissions, we think mandatory reporting for emissions of this kind would be unhelpful at this point. There needs to be greater clarity on how to disclose such information. We often hear from companies that they’re concerned about the uncertainty of best practices and standards for providing Scope 3 emissions reporting.
Many issuers wonder if they are opening themselves up to potential legal or regulatory risk, depending on how they provide the information and what assurance they have of that data. To address this issue, we hope the SEC will provide common sense safe harbors for companies looking to provide disclosure of this kind, so as not to create unintended consequences for companies that are trying to provide full disclosure of their emissions.
The interview also touches on say-on-climate proposals, executive compensation, board diversity and refreshment, and recent voting policy updates.
See our prior reports: “Vanguard Updates Voting Policies” and “Vanguard Releases Global Investment Stewardship Principles” and additional resources on our Institutional Investors page »Vanguard and Proxy Voting Guidelines.
This post first appeared in the weekly Society Alert!