February 27, 2023
Climate Risk Oversight: Vanguard’s Views
In recent commentary, Vanguard has reaffirmed its view that climate risks may be material to certain portfolio companies – and has articulated high-level expectations for how boards of those companies should go about overseeing those risks. Here’s an excerpt:
Vanguard-advised funds look for portfolio company boards to effectively oversee material risks, including material climate risks, and to disclose their approaches to oversight of these risks to shareholders so that the market can price in the associated risks and opportunities. We believe that boards have a responsibility to be aware of material risks and opportunities (including those associated with climate change) as they make informed, long-term decisions on behalf of company shareholders.
We believe that boards should consider the implications of both physical risks (such as severe weather events, rising sea levels, and temperature changes) and transition risks (such as regulatory changes and technological disruption) and plan for their impacts.
We believe that boards that are most effective in safeguarding long-term investors’ interests from material climate-related risks demonstrate:
• Relevant risk competence.
• Robust oversight and mitigation of material climate risks.
• Effective disclosure of material climate risks and attendant oversight practices.
The commentary goes on to describe each of these aspects of board effectiveness in more detail – and lists typical questions to prepare to answer in Investment Stewardship meetings (which may influence your board agendas as well). It also provides recommended TCFD disclosures in a handy chart.
This is the latest in a pretty regular flow of investment stewardship commentary that Vanguard has been providing on its “insights” page. I blogged a few weeks ago on the Proxy Season Blog about the asset manager’s approach to contested elections.
For convenience for members, we continue to gather policies & commentary from lots of investors & asset managers in our “Institutional Investors” Practice Area. If you aren’t already a member, try a no-risk trial today.
– Liz Dunshee