The Vanguard Group offers mutual funds and index funds to approximately 20 million private and institutional investors worldwide. With $3.1 trillion in assets under management, it is the world´s second largest asset manager after BlackRock. Unlike its competitor Allianz, Vanguard has not signed the UN Global Compact. Vanguard only signed the UN Principles for Responsible Investment Managers until 2014, claiming that this step now formalizes its integration of “ESG issues into our existing investment analyses and portfolio ownership practices”. Besides considering ESG factors in the investment analysis, Vanguard also commits to engaging with companies on environmental, social and governance criteria through proxy voting, recognising that its “voice carries considerable weight”.
Environment: Apart from Vanguard’s commitment to reduce the environmental impact of its direct business operations by reducing energy and water consumption as well as increasing recycling, there is little to no concrete information available on any sustainability criteria that are taken into account in its asset management business. Arguing that humanitarian, ethical, environmental and social concerns are somehow incompatible with their obligation to maximize returns on behalf of shareholders, Vanguard states that “there may be instances when it is appropriate to assess, and possibly address, certain social issues”. Yet, no information is available on the exact procedures at Vanguard, making this asset manager one of the least transparent investors investigated in the Dirty Profits 4 Report.
Vanguard’s largest holding is in ExxonMobil (€20.3 billion in managed shares and bonds), one of the major carbon emitters and climate deniers, who has also been responsible for human rights abuses in the development and operation of its production facilities besides cases of serious environmental contamination. Holding 6% of Exxon’s shares, Vanguard does have a clear responsibility and also ability to influence the company’s unethical and harmful business practices. However, Vanguard’s 2015 proxy voting reports reveal that the asset manager voted against a shareholder proposal to “adopt quantitative GHG goals for products and operations” at Exxon. In addition to this, human and labour rights violations are associated with Vanguard’s second largest holding, Verizon Communications (€13.0 billion in managed shares and bonds). Those are the rights to privacy as well as labour rights, as Verizon has been providing sensitive information to the UK spy agency GCHQ and has been tracking user behaviour without consent. Also its involvement in Pfizer (€ 11.4 billion in managed shares) has to be seen as controversial, as it is impeding access to affordable medicine and facing accusations of environmental contamination throughout its supply chain. In addition Pfizer and others have been found guilty of off-label promotion and aggressive marketing.
Consumer goods: Vanguard´s holdings of Inditex (€1.4 billion in managed shares) also profits from violations of human and labour rights. The multinational clothing company has been linked to instances of slave-like employment conditions in its supply chain and refusing to take legal accountability. Furthermore, the food and beverage companies Coca-Cola and Nestlé constitute considerable holdings of Vanguard (combined: €14.3 billion in managed shares and bonds). These companies are widely criticized due to excessive water extraction and severe human rights violations such as land grabbing and child labour in their supply chains.
Defence: the asset manager has €3.9 billion in managed shares and bonds of Lockheed Martin -the biggest arms-producer worldwide. The company is involved in the production of nuclear weapons and in cases of fraudulent lobbying. In this context, Vanguard’s vote against a proposed “report on lobbying payments and policy” at the latest Annual Meeting of Lockheed Martin has to be seen as highly controversial and ridicules its statement to “ensure that companies in which our funds invest are subject to the highest standards of corporate governance”.
The above extract is taken from the Dirty Profits 4 report published in February 2016.
Vanguard was included in the Dirty Profits 4 report, details of the financial ties to selected controversial companies can be found within the report and detailed data tables from the research period 2013-2015 can be downloaded here.