January 2, 2024
Human Capital: Vanguard’s Expectations for “Worker Health & Safety”
In this 3-page memo released last month, the Vanguard Investment Stewardship team gives insight into how it analyzed shareholder proposals at 4 companies calling for third-party audits of workplace safety practices.
Vanguard emphasizes its case-by-case approach to these shareholder proposals, based on the relevant company’s facts & circumstances. The asset manager explains factors – e.g., disclosure about board oversight and quantitative improvements in safety metrics, etc. – that led to it voting against the proposals at each of the companies. The “against” votes occurred even though Vanguard determined that worker health & safety was a material risk for all 4 of the companies, so for other companies where this is a big issue, these examples are worth checking out. Here’s what Vanguard looks for from all portfolio companies on this topic:
On behalf of the investors in Vanguard-advised funds, we believe that companies should focus on issues that are material to their business. We look for boards to have the appropriate skills and expertise to identify and oversee material risks, to understand how risks could affect shareholder value creation at the companies they oversee, and to provide clear, decision-useful disclosure on oversight and management of the company’s material risks.
Portfolio companies should adhere to applicable labor laws and, where material, maintain oversight of workplace health and safety risks. We further look for boards to appropriately challenge management and regularly reevaluate risk-mitigation practices if the degree of financial materiality or the manifestation of a specific risk changes over time.
In engagements with portfolio companies, we seek to understand how boards oversee material risks, including those that relate to human capital management. Although the Vanguard-advised funds do not seek to dictate company strategy or day-to-day operations, we continue to engage boards on how they define materiality related to human capital risks, their oversight process for mitigating material risks, and how they disclose material risks to investors.
– Liz Dunshee