Dive Brief:
- Vanguard, the nation’s second largest asset manager, unveiled 2024 proxy season data from its pilot program that gave investors the opportunity to identify their individual investment and engagement policy preferences.
- A plurality — 43% — of the program’s 40,000 participants aligned their voting preferences with Vanguard’s advised policy, the investment firm reported Tuesday. Another 30% of pilot participants aligned their votes with company-board policies, while just under a quarter — 24.4% — of investors chose the program’s third-party ESG policy, the company said.
- “The results from our pilot underscore that individual investors have a point-of-view on corporate governance,” John Galloway, Vanguard’s global head of investment stewardship, said in the release. “We are committed to continuing to empower investors by expanding access to the proxy voting process.”
Dive Insight:
Vanguard launched its proxy choice pilot in early 2023 with three eligible equity funds, before expanding the program’s eligibility to include an additional two index funds that collectively represent $100 billion in assets under management for 2024. Just 2.3% of the program’s participants decided to not have any votes cast on their behalf.
Galloway said the program is designed to allow interested individual investors to “more fully align their investment portfolios with their personal preferences.”
“We believe Investor Choice is an exciting and impactful way to empower individual investors in specific Vanguard funds to more directly influence how their proxies are voted, improve the corporate governance ecosystem, and reinforce our passive, investor-owned, and time-tested approach,” he said in the release.
The data Vanguard released Tuesday also showed that the popularity of the ESG investment policy varied depending on which stock the pilot participants invested in. The firm said 78% participants who invested in Vanguard’s ESG U.S. Stock ETF chose the third-party ESG policy, three times higher than the overall selection rate for pilot participants.
Meanwhile, participants who invested in the firm’s Dividend Appreciation Index Fund — one of the two funds added to the pilot this year alongside the firms Mega Cap Index — were least likely of the participants from the five eligible funds to choose the third-party ESG policy as their preference. Just 17.9% of investors in the Dividend Appreciation fund chose the ESG policy; one-third of participants aligned their policy with companies’ boards.
Lindsey Stewart, director of investment stewardship research for Morningstar Sustainalytics, said in emailed comments to ESG Dive Wednesday that it’s “encouraging” to see that 40,000 investors participated in the pilot program, calling it a “decent start” though noting “it’s not a large proportion” of Vanguard’s investors.
He added that the number of pilot participants from the ESG ETF shows “the pilot seems to have gone down well with sustainability-conscious investors. Stewart said investors in that fund “are more likely to see ESG policy as a much better fit with their own sustainability priorities than Vanguard’s house view.”
Stewart said the large number of participants who stuck with Vanguard’s policy could be a sign that they trust the asset manager’s decision making or a sign of inertia, where “investors’ appetite to fill in yet one more form generally might not be that high.”
Vanguard’s latest investment stewardship report revealed that the firm supported zero environmental or social proposals during the 2024 proxy season.
Stewart also pointed to the participants who chose to not vote or align with company board policies, given that the pilot was designed to give the investors additional options. Together, the two groups represent nearly one-third of participants who he said “selected options that actually hand more power back to companies.”
“The outcome we’re seeing here is that over 75% of investors in the pilot selected options that would decline to support the overwhelming majority of shareholder proposals on environmental and social issues,” he said.
