Investment giant under fire over Ohio chemical disaster

Vanguard is the world’s second-largest fund firm and asset manager with about $7.2tr (£5.8tr) of assets on its books. It owns the largest stake in Norfolk Southern, the train company being sued by the State of Ohio after one of its trains derailed in the town of East Palestine in February. The accident led to the open-air burning of around 100,000 gallons of toxic vinyl chloride.

Vanguard is also the third largest shareholder of Occidental Petroleum, the parent company of Oxy Vinyls, the firm which owned three of the five train cars that contained the hazardous chemical.

This arrangement has led to anger from campaigners, who say individual investors should “know the negative impacts of their investments.”

The chemicals were traveling from Oxy Vinyls’ plant in Deer Park, Texas to its facility in Niagara Falls, Ontario on 3 February when the two-mile long 32N train derailed.

Oxy Vinyls is one of the biggest producers of PVC in the world and has “a long history of community and worker safety concerns,” according to the campaigning group Toxic-free future. In 2021, ex-employees of a New York State plant, which has since been closed, spoke out about their exposure to asbestos and accused the company of failing to enforce safety rules.

The firm also has a history of accidents. In June last year, a fire at its plastics production facility in La Porte, Texas, raised concerns about the potential release of ethylene oxide, but no “protective measures” for the community were advised by officials.

In 2012, 20,000 gallons of vinyl chloride destined for Oxy Vinyl’s facility in Pedricktown, New Jersey was released into Mantua Creek in Paulsboro, after a train was derailed when a bridge jointly owned by Norfolk Southern and another rail operator failed to function properly.

The state of Ohio launched legal proceedings against Norfolk Southern last month, describing the East Palestine derailment as one of a “long string” of derailments and environmental accidents involving the company. Since 2015, the state notes, at least 20 Norfolk Southern train derailments have involved the release of chemicals. The lawsuit describes the derailment as “recklessly endangering” to the residents of East Palestine and the state’s natural resources.

The derailment in East Palestine initially caused a fire, which may have released toxic chemicals into the atmosphere, but it was the authorities’ decision to incinerate 115,580 gallons of liquid vinyl chloride in an attempt to avoid an explosion, which has caused the most concern. Green groups and scientists fear that the uncontrolled incineration of the chemical may have led to the formation and dispersion of dioxins. These carcinogenic chemicals are bioaccumulative and may have found their way into the food supply chain, experts claim.

Monica Unseld, executive director of Louisville-based non-profit Until Justice Data Partners told E&T that investors “should absolutely know the negative impacts of their investments and profits”.

“Investment firms should also be required to report these disasters and external costs to investors and shareholders, knowing that many of these costs are incalculable, such as the value of someone’s life,” she added.

Vanguard faced criticism in December for pulling out of the Net Zero Asset Managers (NZAM) initiative, which was launched in late 2020 to encourage fund firms to reach net zero emission targets by 2050 and limit the rise in global temperatures.

Earlier this month, more than 1,400 parties that invest with Vanguard for pensions, retirement-savings plans and more wrote to Vanguard claiming that ignoring climate-change risks was a “breach of fiduciary duties”.

Tracy Gregoire, investor strategist for the environmental health and justice non-profit, Coming Clean network, told E&T that “private investors should use their influence to support safer chemicals and production processes that can prevent chemical disasters and reduce toxic pollution, measures that also reduce business risk and liability”.

However, she added that “unfortunately, some investors either ignore these risks or undercut efforts to address them, and they need to be held accountable”.

Susan Gary, professor at the University of Oregon School of Law and an expert in Environmental, Social and Governance (ESG) investment told E&T that Norfolk Southern’s share price had dropped 9.4 per cent a month after the derailment, showing that ESG information has “material financial significance”.

“A question for Vanguard’s investor-clients would be what information did Vanguard have? What information did it make available to investors generally? And what did Vanguard do with that information?

“Investors who invest through Vanguard have a couple of options. Of course, an investor can move their money to a different investment manager, one who will use material ESG information. Another option is for investors to push Vanguard to do better.

“As an asset manager with significant assets under management, Vanguard has a voice that it could use to push companies to address environmental and safety risks. The decision to pull out of the Net Zero Asset Managers Initiative suggests a pulling back from using its voice in this way,” she added.

Unseld added that the disaster showed there needed to be “a larger conversation on the ability of traditional investment and shareholder capitalism to address climate change”.

“Effective investment should focus on those more impacted by climate change and those with the most experience keeping communities alive under the threat of climate change. That means direct investment at the community level with unrestricted funds and accessible reporting. Putting funds into Wall Street will delay progress and sustain damage,” she said. 

Vanguard, Occidental Petroleum and Norfolk Southern all failed to respond when approached for comment by E&T.