FERC allows Vanguard to acquire US utility shares over GOP ESG objections

An application by Vanguard Group Inc. to acquire shares of US electric utilities was routinely granted May 7 over objections from Republican state attorneys general who raised concerns about the institutional investor's corporate environmental, social and governance policies.

Vanguard, the world's second-largest institutional investor, asked the Federal Energy Regulatory Commission last November to extend for three years a blanket authorization (EC19-57) to acquire the shares under Section 203 of the Federal Power Act.

Large institutional investors routinely seek approval from FERC to acquire shares in US utilities. Unlike many of those other applications, Vanguard's was protested by 13 Republican attorneys general.

The coalition's joint protest argued that Vanguard, its advisory subsidiaries and related entities may be running afoul of Federal Power Act provisions designed to ensure that institutional investors cannot exert control over publicly traded utilities. They specifically asserted that Vanguard's participation in the Net Zero Asset Managers initiative and the Ceres Investor Network shows the institution is actively seeking to shift investments away from fossil fuels.

Vanguard in December 2022 withdrew from the Net Zero Asset Managers initiative but is still listed as a member of the Ceres Investor Network.

The blanket authorization allows Vanguard and its subsidiaries to acquire up to 20% of the voting securities of any individual US utility on behalf of their applicant funds, with no single applicant fund holding more than 10% of any utility's voting securities. The applicant funds are mutual funds or exchange traded funds.

"Vanguard is not and has never been an activist investor," it said in the November 2022 application, adding that it "neither seeks to, nor does, control or influence any portfolio company's day-to-day management or operating decisions."

Section 203 of the Federal Power Act requires FERC to act on proposed transactions within 180 days or issue a tolling order for no more than 180 additional days. If FERC does not act within the first 180 days, the application is deemed granted by operation of law. The commission on May 8 issued a notice saying that Vanguard's request was deemed granted, effective the previous day. Vanguard's previous blanket authorization was due to expire May 9.

The protest filed with FERC is just one of many lines of attack that Republican-led states opened against corporate ESG policies in 2022. Meanwhile, some Democratic-led states have remained committed to aligning their pension funds with net-zero investment strategies.

BlackRock Inc. CEO Larry Fink, head of the world's largest asset management firm, said in a March 15 letter to investors that the company continues to see climate change as an investment risk. Fink also said in the letter that "it's not our place to be telling companies what to do."

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