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Vanguard’s 2025 Policy: A New Direction for Board Diversity

Vanguard’s 2025 Proxy Guidelines came out last week, prompting coverage of their softening of ESG and DEI language from both Reuters and ESG Dive.  Reuters described it as “dialing back diversity language”, and ESG Dive as “diluting board composition recommendations on diversity”.  Vanguard’s response was to state that the changes weren’t significant, and that they were simply part of their annual review process.

These changes are a shift toward a more neutral, case-by-case approach that prioritizes “market norms” over global governance frameworks. It’s hard not to conclude that “market norms” is simply code for shifting in the face of pressure from government, whether at the State or Federal level.

Here are the key changes that Vanguard made.

1. Board Composition and Diversity

2024 Policy

  • Emphasized board diversity, stating that boards should reflect “diversity of attributes including tenure, skills, and experience” and represent “diversity of personal characteristics, inclusive of at least diversity in gender, race, and ethnicity.”
  • Expected companies to disclose their approach to board composition, including the process for evaluating effectiveness, addressing gaps, and evolving board membership.
  • Vanguard’s funds would vote against nominating/governance committee chairs or other board members if a company failed to take action on board diversity.

2025 Policy

  • Softened the language on diversity, now emphasizing “diversity of thought, background, and experience, as well as personal characteristics (such as age, gender, and/or race/ethnicity),” but without setting explicit expectations for representation.
  • Board diversity expectations are now more market-specific, meaning Vanguard will assess board diversity based on local listing standards and governance frameworks rather than a global standard.
  • Instead of outright voting against nominating/governance chairs for failing to address diversity, Vanguard now considers market norms and corporate explanations before taking action.

Key Change:

Vanguard is stepping back from an explicit commitment to gender and racial diversity as a key voting criterion and shifting towards a broader, more flexible approach focused on market norms.

2. Environmental & Social Shareholder Proposals

2024 Policy

  • Vanguard was willing to support shareholder proposals if:
    1. They addressed a shortcoming in a company’s disclosure relative to market norms.
    2. They reflected an industry-specific, materiality-driven approach.
    3. They were not overly prescriptive about how a company should act.
  • Climate risk disclosure expectations: Vanguard could vote against boards that failed to disclose material climate risks, particularly if they were misaligned with frameworks such as the Paris Agreement.
  • Supported workforce demographic disclosures, including publishing EEO-1 reports, where relevant.

2025 Policy

  • Less emphasis on ESG-related disclosures: The 2025 policy still evaluates environmental and social shareholder proposals but weakened its criteria for supporting them.
  • Climate risk oversight changes:
    • Removed reference to alignment with the Paris Agreement as a factor in assessing risk management failures.
    • The language around voting against directors for failing to oversee climate risks has been diluted to focus more on “company-specific context” rather than alignment with global standards.
  • Social Risk & DEI Reporting:
    • Explicit support for workforce demographic disclosures (e.g., EEO-1 reports) has been softened.
    • The policy does not explicitly mention diversity, equity, and inclusion (DEI) oversight as a voting criterion, whereas it did in 2024.

Key Change:

Vanguard has scaled back its willingness to support ESG and DEI-related shareholder proposals, particularly on climate disclosures and workforce diversity reporting. The 2025 policy is more company-specific and market-based, rather than aligned with global frameworks like the Paris Agreement.

3. Executive Compensation (ESG Metrics in Pay)

2024 Policy

  • Vanguard stated that it did not expect ESG (environmental, social, governance) metrics to be a “standard component” of all executive compensation plans.
  • However, if a company chose to include ESG metrics, Vanguard would evaluate them based on rigor, disclosure, and alignment with key strategic goals.

2025 Policy

  • The stance remains similar: Vanguard does not require companies to include ESG metrics in executive pay.
  • However, the 2025 guidance removes direct references to ESG as a consideration in performance-linked compensation decisions.

Key Change:

While Vanguard already had a neutral stance on ESG-linked compensation, the 2025 policy makes an effort to further de-emphasize the relevance of ESG incentives.

Overall Takeaways:

1. Shift Away from Explicit Diversity Expectations

  • 2024 emphasized gender, racial, and ethnic diversity in board composition.
  • 2025 softens this to a broader “diversity of thought and background” approach.
  • Voting enforcement for diversity-related shortcomings is now more flexible and market-dependent.

2. Weaker Support for ESG & DEI Shareholder Proposals

  • 2025 moves away from references to the Paris Agreement and broad climate risk disclosure requirements.
  • Vanguard is less likely to support shareholder resolutions demanding climate action or DEI-related reporting.

3. Decreased Focus on ESG Metrics in Executive Pay

  • 2024 allowed for the evaluation of ESG-linked compensation where relevant.
  • 2025 removes direct mention of ESG factors in pay evaluation.

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Recycled – June 30, 2021

Renewable Energy Boom newspaper headline
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Another Day… Another Corporate Call for Action

Yesterday, we saw The Investor Agenda call on government to step up with more comprehensive commitments to meeting Paris Accord climate change targets. The World Economic Forum’s CEO Alliance for Climate Change also issued a similar call for action. The CEO Alliance represents roughly 400 of the top 2000 publicly traded global companies. The letter, signed by 78 of the CEOs participating in this group, called on governments to deliver policy changes including:

  • Publish new NDCs, aligned to a 1.5C target, and halving emissions by 2030.
  • Commit to net-zero by 2050, with roadmaps to get there.
  • Ensure that developed countries meet and exceed their $100B commitment to support developing countries mitigate and adapt to climate change.
  • Develop broadly accepted carbon pricing mechanisms, with escalating carbon prices to drive the transition.
  • Compel all business to establish credible decarbonization targets, and fully disclose all emissions.
  • Eliminate fossil fuel subsidies, and cut tariffs on green goods.
  • Boost R&D spending.
  • Invest in climate adaptation. This means resilient cities and infrastructure.
  • Create and implement sector-specific incentives for power, transport, buildings and cities, industry, land and agriculture, and finance.

It encompasses the same policy actions as the Investor Agenda open letter, and then takes them a step further asking government to provide incentives and R&D as well.

Both the Investor Agenda letter, and the CEO group letter ask for the elimination of fossil fuel subsidies, and for synchronized carbon pricing mechanisms to be introduced. What would this do?

  • Direct fossil fuel consumption subsidies are substantial, according to the IEA, at about $320B annually. The incentives and R&D asked for could be funded by the elimination of these subsidies.
  • Similarly, carbon pricing mechanisms send a signal to markets that low-carbon investments will be valuable and also create incentives for companies to be more efficient. Carbon pricing has momentum. According to the World Bank’s 2020 State of Carbon Pricing report, there are now 61 carbon pricing initiatives scheduled or implemented, and to-date some 14,500 projects registered. One challenge for business is the diversity of models. 30 of these initiatives are carbon taxes and 31 are carbon exchange trading systems.

Taken together, these two open letters are a strong endorsement by business. Rather than fight climate change efforts and regulation by government, they are calling for public/private partnerships to make progress more quickly.

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Investors Group Asks Governments to Step Up

The Investor Agenda is a policy advocacy organization with the mission of accelerating a net-zero emissions economy. Today 457 of their members with a combined $41 trillion in assets asked governments to do more than meet their Paris Agreement commitments. Specifically, they are asking government to:

  1. Strengthen their NDCs to align with a 1.5 C target for 2030. NDCs are simply the commitments that governments made at the Paris conference.
  2. Commit to mid-century (2050, presumably) net-zero emissions targets, and outline the interim steps to get there.
  3. Implement policies to deliver these targets, including phasing out fossil fuel subsidies, carbon trading systems and more.
  4. Use COVID-19 recovery plans to double down on the transition to net-zero.
  5. Commit to mandatory climate risk disclosure requirements.

One of the misunderstood stories of the climate transition is the opportunity in it. The capital and operation costs of both solar and wind power are now well below corresponding fossil fuel generation, creating massive opportunities for investment. You can see this in the financial performance of renewable assets as a class. These investors are saying “we have the capital to make help make this transition”. They’re asking governments to commit with them, to require disclosure of climate risk by business, and to remove the subsidies that artificially support the fossil fuel industry.

Transforming the global economy will be a hugely expensive, but hugely profitable opportunity. This is a relatively small, entirely understandable, and fair ask on the part of the investment community.