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Vanguard adopts social screening of investments

Vanguard adopts social screening of investments

Vanguard Group has formalized a process to monitor its mutual funds for investments in companies that may be linked to human-rights abuses and urged shareholders to resist an activist group's pressure to drop holdings that the group says are linked to China and genocide in Sudan.
The policy's disclosure was made in a regulatory filing Tuesday. Vanguard manages about $1 trillion in U.S. mutual fund assets.
In a proxy filing for its annual meeting July 2, privately held Vanguard urged shareholders in its funds to reject a proposal backed by Investors Against Genocide. Vanguard argues the proposal would duplicate the fund-screening process it has adopted.
But so far, Investors Against Genocide says there's no indication Vanguard has sold investments in Chinese oil companies and other firms that the group says are linked to genocide in the African nation of Sudan.
Quarterly holdings reports by Vanguard funds the group is targeting show the funds "have been operating pretty much business as usual," Eric Cohen, the Boston-based nonprofit group's chairman, said Wednesday.
Cohen said his group hopes upcoming quarterly reports will show Vanguard funds such as Emerging Markets Stock Index Fund (VEIEX) have begun selling stocks such as PetroChina Co. The group says Vanguard's total holdings in Sudan-linked energy companies are valued at about $305 million.
Vanguard spokeswoman Linda Wolohan said six Vanguard funds continue holding what she called "modest" stakes in the disputed companies. She said judgments by its fund trustees about which companies meet Vanguard's investment screening criteria "might vary from what special interest groups or other organizations would say about these companies."
But she acknowledged that Vanguard's screening policy "is the same in spirit" as the activist proposal that Vanguard is urging shareholders to reject at the annual meeting.
The Valley Forge, Pennsylvania-based company's policy applies to all 157 of Vanguard's funds, rather than the 30 targeted in the group's campaign.
A trustees' response to the activist proposal says it "would simply result in a duplicate procedure" to the one already in place.
Wolohan said Vanguard trustees decided within the last six months _ she declined to specify a date _ to "formalize" a procedure she said had already been in place.
But Cohen, of Investors Against Genocide, said Tuesday's regulatory filing was the first public disclosure indicating Vanguard screens investments based on social criteria.
In its proxy filing, Vanguard said its trustees believe mutual funds "are not optimal agents to address social change."
However, the trustees "acknowledge that there may be instances when it is appropriate to assess such issues," the filing says. "Accordingly, the trustees directed Vanguard to implement a formal procedure for regular reporting to the trustees on portfolio companies whose direct involvement in crimes against humanity or patterns of egregious abuses of human rights would warrant engagement or potential divestment."
Investors Against Genocide has been pressing more than a dozen investment companies to adopt shareholder proposals for what it calls "genocide-free" investment policies. The only such proposals to come to votes so far were rejected by Fidelity Investments shareholders last year. Fidelity had argued the proposals would conflict with its responsibility to maximize shareholder returns.
The activist campaign has focused on investments linked to Darfur, the west Sudan region where fighting erupted in 2003 as ethnic African rebels took up arms against Sudan's government. Nearly 2.5 million people have been displaced by a conflict that has killed about 300,000 people.


Updated : 2021-05-15 22:31 GMT+08:00