Is Vanguard moving toward Sudan divestment?

Investors Against Genocide Wednesday hailed a recent Vanguard proxy filing as a monumental coup resulting from their efforts to push fund groups to divest from companies linked to the genocide in Sudan.

According to the March 10 filing, the funds’ trustees directed the firm to implement a formal procedure for regular reporting to them on companies in which they invest “whose direct involvement in crimes against humanity or patterns of egregious abuses of human rights would warrant engagement or potential divestment.”

The procedure was adopted across all 157 funds within the last six months, says a spokeswoman for Vanguard. In the filing, the firm says the procedure complements Vanguard’s existing practices and that as part of their usual investment review, the trustees have considered important social issues.

Vanguard says its new procedure is “substantially identical to the [Investors Against Genocide] shareholder proposal submitted for 30 funds, which if adopted, would simply result in a duplicate procedure.” For this reason, Vanguard has told shareholders to vote against the proposal from the activist group. The group's non-binding proposal seeks to have the board set up procedures to prevent holding investments in companies linked to the genocide or egregious human rights violations.

Investors Against Genocide believes Vanguard's moves signal that change is afoot at the firm — and that it may sell its holdings from companies tied to the genocide in Sudan.

Yet, the precise meaning of “substantially identical” is open to interpretation; Vanguard did not provide details of the procedure beyond what is outlined in its proxy filing.

In fact, the firm could decide to opt for engagement rather than divestment. Some firms have argued for engagement with the companies that are the Sudanese government’s main oil partners and that have been identified as helping to support the genocide there. The firms say engagement is another strategy for achieving social change. Investors Against Genocide says engagement can be successful but that there must ultimately be results within a given time frame.

Vanguard's proxy states, "The trustees recognize that their collective judgment regarding these issues and specific companies may differ from that of special interest groups or other institutions with which the trustees are associated."

Whether Vanguard chooses to divest will be apparent in the funds’ next disclosures of portfolio holdings, says Eric Cohen, chairman of Investors Against Genocide. As of the most recent disclosure, he says, five Vanguard funds held $305 million in companies that have been linked to the genocide, such as PetroChina and Petronas.

“We were surprised and delighted [to see Vanguard’s proxy] because it appears as though we have a major breakthrough in our campaign, and we hope to have that confirmed soon,” says Cohen.

Numerous other firms have been targeted by the group’s campaign, most notably Fidelity, but also Barclays, Franklin Templeton, TIAA-Cref and T. Rowe Price.

Last proxy season, 14 Fidelity funds voted on Investors Against Genocide’s shareholder proposal. It garnered support ranging from 20% to 31% — an unusually high level of support for social issues.

The shame tactics of other activist groups also may be pushing fund companies toward change. The Save Darfur Coalition, for example, aired an ad in 2007 in which an advisor congratulates a couple with whom he’s consulting for “making a killing in Darfur” in their investment portfolio.

Cohen said the group is in private talks with a number of firms about its shareholder proposal, with the hope that they will make changes. Investors Against Genocide is currently having discussions with senior people at TIAA-Cref, he says.

“We’re pleased to work closely with them, hoping that they can adopt the kind of policy that is reflected in our shareholder proposal,” he says.

In the past, Cohen has criticized TIAA-Cref for its policy of engagement because, he says, it hasn’t worked. At a TIAA-Cref shareholder meeting last July, he stated in a presentation, "At what point does weak engagement become the equivalent of doing nothing in the face of genocide?”

A spokesman for TIAA-Cref confirmed that discussions have been taking place between the firm and Investors Against Genocide.