Rights Group Says Vanguard 'Misled' Public on Social Investing
2009-04-13 21:45:05.761 GMT
By Christopher Condon

April 13 (Bloomberg) -- Vanguard Group Inc., the largest U.S. manager of stock and bond mutual funds, has been accused by an advocacy group of misleading investors with its policy aimed at curbing human rights abuses.

Investors Against Genocide, a Boston-based group that pressures mutual-fund companies to make socially responsible investments, said Vanguard increased its holdings in Beijing-based PetroChina Co. in the three months ended Jan. 31. Vanguard said March 11 that it had begun a policy in the previous six months to identify companies linked to rights abuses.

"Ordinary investors would be misled into thinking Vanguard was taking appropriate action," Investors Against Genocide Chairman Eric Cohen said in an interview today.

Cohen's group succeeded earlier this year in putting proposed screening guidelines on the agenda for 30 Vanguard
funds at the company's July 2 annual shareholder meeting.  Trustees of Vanguard, based in the Philadelphia suburb of Valley Forge, Pennsylvania, has recommended shareholders reject the motions because they already had adopted a "substantially identical" policy covering all 157 Vanguard funds.

Cohen singled out investment in PetroChina by the $6.41 billion Vanguard Emerging Markets Stock Index Fund. It
increased its stake in PetroChina to 155.7 million shares as of Jan. 31 from 149.6 million on Oct. 31, according to the latest data filed with regulators.

PetroChina explores for oil in Sudan, whose government has been accused of orchestrating genocide in its Darfur region. Trade publication Alexander's Gas and Oil Connections called Sudan the "key overseas upstream investment region" for PetroChina's parent, China National Petroleum Corp.

Death Tolls

More than 300,000 people have died and 3 million left homeless in the conflict in Darfur since 2003, according to
estimates from the United Nations. Sudan says about 10,000 people have died.

Vanguard spokesman John Woerth, referring to the company's March policy statement, said in an interview today that the fund company will identify and monitor companies whose "direct involvement in crimes against humanity or patterns of egregious abuses of human rights would warrant engagement or potential divestment."

"Ultimately, it's the judgment of the trustees" whether a fund pulls out from any companies, he said.

Woerth declined to comment on PetroChina, saying it was against company policy to discuss individual holdings. He said no Vanguard fund had yet divested a holding because of concerns about rights abuses. 

Diplomatic Approach

China's government has urged "patience" and "dialogue" in resolving the Darfur conflict. 

Cohen said every U.S. university and all 27 states that applied socially responsible guidelines to their endowments and pension funds had divested from PetroChina in recent years. 

If Vanguard "were serious about applying a policy to companies substantially contributing to genocide, it's hard to
understand how anyone could disagree on putting PetroChina on top of this list," he said.

TIAA-CREF, the New York-based nonprofit firm that manages $363 billion in retirement accounts, said March 26 that it will push companies it invests in to end abuses in Darfur and that it will divest from those that don't take "meaningful steps to respect human rights" by year-end.

Vanguard managed $1 trillion in U.S. mutual fund assets as of Dec. 31.