By Ross Kerber
(Reuters) – Vanguard Group’s departure from a high-profile industry effort to cut corporate emissions will not change its approach to environmental issues, the mutual fund giant’s top stewardship executive said on Friday.
“Climate change is an existential risk and a risk to investor returns,” said John Galloway, who oversees the Pennsylvania firm’s engagement and proxy voting at portfolio companies, in an interview by teleconference.
For instance, Vanguard in a stewardship report posted on its website on Friday said companies with high exposure to climate risks should disclose their own direct emissions and indirect emissions from purchased energy.
But Galloway defended Vanguard’s proxy votes against a shareholder proposal last year that he said would have compelled refiner Valero Energy Corp to set targets to reduce so-called “Scope 3” emissions caused by the end-users of products.
Galloway said in practice the proposal, which won 42% support, would have required a wholesale change to Valero’s business, a decision best left to the board.
“A proposal that’s asking a company to make a change that’s changing its strategy is not a proposal we’re likely to support,” Galloway said.
Galloway’s comments were among the most detailed since the $7.5 trillion fund firm in December dropped out of the Net Zero Asset Managers (NZAM) initiative, an industry effort to move portfolio companies to reduce emissions. U.S. Republican politicians applauded the move as responsive to their efforts to counter many companies’ treatment of environmental, social and governance (ESG) matters.
Galloway said the decision was driven with an eye on the varied views of its largely retail client base. While joining NZAM initially seemed like a good way to encourage companies to disclose more climate data, he said, it proved a poor fit for Vanguard’s well-known funds built around indexes not set up to choose among companies like active portfolio managers.
“Those indexes don’t have a net-zero objective, so it would be misleading to suggest we were going to do something (on climate) absent action by the individual portfolio companies” held by the funds, Galloway said.
“This was an area of confusion,” he said.
(Reporting by Ross Kerber; editing by Diane Craft)
