Vanguard and BlackRock Inc. (BLK) have hit pause on corporate engagement meetings as they consider the consequences of newly released guidance that redefines how investor activism is regulated, according to published reports from Semafor and Reuters citing unnamed sources.
The Securities and Exchange Commission last week updated guidance potentially requiring more complex and expensive disclosures from fund managers who discuss issues like climate risk or board diversity with companies.
The change threatens to upend the balance between passive fund management and corporate stewardship, potentially forcing ETF giants to chose between maintaining simple disclosure requirements or continuing their influential environmental, social and governance programs.
The temporary pause affects routine discussions that managers of exchange-traded funds traditionally conduct with companies about governance matters and proxy votes.
BlackRock and Vanguard collectively manage trillions of dollars in ETF assets, with positions in nearly every major public company. The regulatory shift could alter how asset managers engage with public companies on ESG issues, potentially limiting their ability to influence corporate policies without triggering costly disclosure requirements, as outlined in the new guidelines.
The rule change may force ETF issuers to reconsider their engagement strategies. ETFs focusing on governance and sustainability metrics could face challenges, as their investment approach often relies on active company dialogue.
For ETF holders, this regulatory pivot raises questions about how major fund managers will balance their ownership responsibilities against new constraints—a relationship affecting millions of investors’ portfolios.
The timing aligns with broader regulatory shifts under the current administration. The guidance was released while Paul Atkins, President Donald Trump’s SEC chair nominee, awaits Senate confirmation.
Fund managers have historically used the SEC’s Schedule 13G forms—simple disclosures for passive investors—to report large holdings. The revised interpretation now suggests that even discussing climate risk or board diversity could require filing Schedule 13D forms, a more complex and costly disclosure, typically used by activist investors seeking control.
The SEC previously allowed fund managers owning more than 5% of a company to engage on various issues without triggering activist reporting requirements. This created a pathway for index ETF providers, who automatically acquire large stakes through their funds, to engage without filing as activists.
