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March 27 (Reuters) - A pillar of capitalism shook off a challenge last May when the U.S. Federal Energy Regulatory Commission allowed Vanguard Group to keep owning big stakes in the country's power utilities. But the body known as FERC has since begun a review of its policy toward investment company ownership of utilities. Since Vanguard and rivals often own big stakes of major electric companies, new ownership limits could force huge stock divestitures.
Vanguard's president filed its comments for the review last Friday with some interesting ideas that might not be radical for Vanguard but that, if adopted, could cut back the clout of passive investors in general.
You can read up on the views of Vanguard and other players in the main part of this week's newsletter below. I've also included links to stories about antitrust allegations against Apple, Big Oil's views on the energy transition, and the latest missive from BlackRock's CEO.
Please connect with me on LinkedIn. If you have a news tip, potential content, or general thoughts you can also email me at ross.kerber@thomsonreuters.com This week's most-read
Apple accused of monopolizing smartphone markets in US antitrust lawsuit
Big Oil executives push back against calls for fast energy transition
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Under pressure, Vanguard suggests new stewardship limits Vanguard suggested restricting the stewardship powers of passive investors in order to assuage concerns of U.S. energy regulators about the growing size of index fund firms.
In December, the Federal Energy Regulatory Commission began to study how it grants "blanket authorizations" allowing investors to buy more than $10 million worth of a public utility's stock without special permission. Comment letters poured in ahead of a deadline Tuesday, including one from Vanguard signed by President Gregory Davis. He suggested FERC create a streamlined review process to authorize passive utility investments from investment companies that pledge to refrain from things like nominating directors, submitting shareholder proposals or "threatening to buy or sell shares to influence corporate behavior."
"Such an approach would encourage passive investors to remain truly passive and allow FERC to perform more meaningful reviews on entities that may have a greater impact on the behavior of public utilities," wrote Davis, who became president of the Pennsylvania-based mutual fund giant last month and remains Vanguard's chief investment officer. Davis' suggestion might have little impact on Vanguard's own operations since the privately-held company already follows the same practices and has backed away from net zero climate efforts by the industry, as other investors press companies on environmental or social issues.
But the letter shows Vanguard feels threatened by pressure from U.S. Republican politicians, said Jeff DeMaso, who edits the Independent Vanguard Adviser newsletter for Vanguard investors.
He noted how in late 2022 13 Republican state attorneys general had filed a motion to FERC questioning if Vanguard's blanket authorization should be renewed. They cited its environmental record such as its membership in the Net Zero Asset Managers initiative, an industry effort to reduce emissions, as evidence the company was not fully passive in its portfolio holdings. FERC ultimately sided with Vanguard, but the battle seems to have left its mark on the company, DeMaso told me. Davis' letter "just reinforces my view that Vanguard was spooked by the petition to deny their FERC approval," DeMaso said. "With this letter Vanguard is looking to remove (or at least reduce) the risk that they find themselves in that position of uncertainty and peril again."
Vanguard has left the Net Zero initiative. It still faces scrutiny from Republicans however. The company declined to comment for this article.
Potential changes from FERC like new ownership limits could have a massive impact on investors and power companies. Critics of many political stripes have raised concerns about rush of money into Vanguard and rivals BlackRock and State Street , who together manage more than $20 trillion and are often a corporation's largest investors.
For instance Vanguard held 12% of the common stock of one of the largest U.S. utilities, Edison International, according to a recent proxy statement. BlackRock held 10% and State Street held 7%.
Even with blanket authorizations, investors face limits, including that they cannot acquire more than 20% of any one utility's voting securities, and cannot exercise day-to-day control.
In other comment letters, BlackRock, Capital Group and trade groups - including the Securities Industry and Financial Markets Association and the Investment Company Institute - told FERC few changes were needed. Index funds hardly influence utility operations anyway, and new constraints on future transactions "may stymie investment in the electric industry at a critical moment in the energy transformation," wrote the Edison Electric Institute, whose members include big power utilities. Further comments were still arriving at my deadline, so stay tuned.
Company News Reddit will need to spend heavily on content moderation as it may face greater scrutiny as a public company, analysts said, threatening its longstanding policy of relying on an army of volunteers to maintain order.
Spain's Iberdrola was to tell investors it will focus spending over the next three years on expanding and upgrading grids, as it builds on a strategy that made it Europe's top utility by market value.
A growing group of Glencore investors want it to keep mining coal instead of spinning out the soon-to-be enlarged unit, with one eye on its financial outlook and another on the environmental benefits of keeping the fuel in-house.
On my radar To blunt political criticism, BlackRock often points to its energy investments, a note firm CEO Larry Fink sounded in his latest annual letter when he mentioned companies that produce both fossil fuels and clean power or clean technology. "Many companies, like Occidental, do both, which is a major reason BlackRock has never supported divesting from traditional energy firms. They’re pioneers of decarbonization, too," Fink wrote.
Sustainability nonprofit Ceres counted a record 263 climate-related shareholder resolutions filed for North American corporate shareholder meetings, with proponents looking to turn around fading results since 2021. But an expert at The Conference Board expects support to keep falling. Let's see what happens as the springtime shareholder meeting season gets going.
