Vanguard Proposes Human Rights Policy
Vanguard Group has filed a proxy statement with the Securities and Exchange Commission that includes a new corporate policy on investments that have connection with crimes against humanity. The measure would require such funds to report regularly to the board for consideration of divestment. American Funds and TIAA-CREF are considering similar initiatives.
The initiative follows shareholder proposals submitted for 30 Vanguard funds as part of a broad campaign coordinated by Investors Against Genocide, which include divestment policies for companies connected with Sudan. "Although the trustees also believe that mutual funds are not optimal agents to address social change, they acknowledge that there may be instances when it is appropriate to assess such issues," said Vanguard's filing.
Vanguard recommends that shareholders not approve the IAG proposals because its new procedure is "substantially identical to the shareholder proposal submitted for the 30 funds."
Market observers, however, are reluctant to give Vanguard a humanitarian badge of honor just yet. "I'd be surprised if Vanguard just up and decided to have a genocide-free investing policy," said Dan Culloton, a Morningstar analyst. "I think it's telling that they recommend that they reject it."
One Vanguard fund in the spotlight is the $10.6 billion Emerging Markets Stock Index Fund, which invests in PetroChina, the publicly traded arm of China National Petroleum Company. CNPC has had a longstanding partnership with Sudan, which connects the company to genocide in Darfur. Culloton points out that, as an index fund, its first responsibility is to track the benchmark rather than be socially responsible. "It's not going to divest PetroChina if it will mean significant tracking error in its funds because it owes its shareholders to track that index," he said.
IAG hopes to see a substantial reduction in the fund's holdings when it reports first quarter results on March 31. "We do want to see the next step and if the procedures kick in," said Eric Cohen, chairman of IAG. "We're hoping that the kind of leadership we've seen from Vanguard will get sympathy and perhaps parallel action from other mutual fund companies."
TIAA-CREF and American Funds will vote on IAG's submitted proposals at their upcoming annual shareholder meetings this summer for the $208.7 billion College Retirement Equity Fund and the $44.1 billion Investment Company of America Fund, respectively. A spokesman for TIAA-CREF said that the company is currently reviewing the proposal, but noted that rather than divest in a company with Sudanese interest, the firm is more likely to work with that company to cut off ties with the Sudanese government. "If the choice is either to divest or to make a difference through applying pressure to portfolio companies, we have chosen the latter," he said. An American Fund spokesman did not comment.
Calls to Vanguard were not returned. A person answering the phone at Vanguard founder John Bogle's home said he was unavailable for comment.
- Libby Sallaberry
Vanguard Group has filed a proxy statement with the Securities and Exchange Commission that includes a new corporate policy on investments that have connection with crimes against humanity. The measure would require such funds to report regularly to the board for consideration of divestment. American Funds and TIAA-CREF are considering similar initiatives.
The initiative follows shareholder proposals submitted for 30 Vanguard funds as part of a broad campaign coordinated by Investors Against Genocide, which include divestment policies for companies connected with Sudan. "Although the trustees also believe that mutual funds are not optimal agents to address social change, they acknowledge that there may be instances when it is appropriate to assess such issues," said Vanguard's filing.
Vanguard recommends that shareholders not approve the IAG proposals because its new procedure is "substantially identical to the shareholder proposal submitted for the 30 funds."
Market observers, however, are reluctant to give Vanguard a humanitarian badge of honor just yet. "I'd be surprised if Vanguard just up and decided to have a genocide-free investing policy," said Dan Culloton, a Morningstar analyst. "I think it's telling that they recommend that they reject it."
One Vanguard fund in the spotlight is the $10.6 billion Emerging Markets Stock Index Fund, which invests in PetroChina, the publicly traded arm of China National Petroleum Company. CNPC has had a longstanding partnership with Sudan, which connects the company to genocide in Darfur. Culloton points out that, as an index fund, its first responsibility is to track the benchmark rather than be socially responsible. "It's not going to divest PetroChina if it will mean significant tracking error in its funds because it owes its shareholders to track that index," he said.
IAG hopes to see a substantial reduction in the fund's holdings when it reports first quarter results on March 31. "We do want to see the next step and if the procedures kick in," said Eric Cohen, chairman of IAG. "We're hoping that the kind of leadership we've seen from Vanguard will get sympathy and perhaps parallel action from other mutual fund companies."
TIAA-CREF and American Funds will vote on IAG's submitted proposals at their upcoming annual shareholder meetings this summer for the $208.7 billion College Retirement Equity Fund and the $44.1 billion Investment Company of America Fund, respectively. A spokesman for TIAA-CREF said that the company is currently reviewing the proposal, but noted that rather than divest in a company with Sudanese interest, the firm is more likely to work with that company to cut off ties with the Sudanese government. "If the choice is either to divest or to make a difference through applying pressure to portfolio companies, we have chosen the latter," he said. An American Fund spokesman did not comment.
Calls to Vanguard were not returned. A person answering the phone at Vanguard founder John Bogle's home said he was unavailable for comment.
- Libby Sallaberry