The letter was first drafted by Sierra Club Foundation Director Paul Rissman, a trustee of his children's Vanguard accounts. Before retiring in 2008, he was executive vice president of AllianceBernstein and CIO of Alliance Growth Equities.
Mr. Rissman said in an interview that he hopes Vanguard will begin to engage with companies on addressing the systemic risk of climate change, "which is a risk that you cannot invest away," he said.
"Since Vanguard owns more stock than any other company, they could have disproportionate influence on corporate behavior" to address climate change, Mr. Rissman said. "If anyone can change corporate behavior, Vanguard could, but they won't."
Vanguard did not immediately respond to a request for comment on the letter.
The letter criticizes Vanguard for not joining investor coalitions such as Climate Action 100+ and for recently withdrawing from the Net Zero Asset Managers initiative.
That withdrawal "seems to have been a purely political move by Vanguard in response to the demands of Republican political actors seeking to undermine environmental, social, and governance (ESG) standards," the letter said. "It is troubling that Vanguard acquiesced to this political pressure at the cost of reducing its ability to mitigate the climate risks in its clients' portfolios," which could potentially breach Vanguard's duty to investors.
Neglecting the portfolio risk of climate change could expose Vanguard to negative publicity and possibly litigation, while those distractions "could result in additional performance issues over time," the letter said.
In response to a March 1 report from shareholder advocacy group Majority Action criticizing the four largest asset managers — BlackRock, Vanguard, Fidelity Investments and State Street Global Advisors — for not holding corporate boards accountable for managing climate risk, Vanguard said it considers climate change "to be a material risk to companies and their shareholders."
Citing that statement, the letter writers claim that by having "one of the worst records of voting for shareholder climate resolutions of any firm in the industry," Vanguard is neglecting its fiduciary duty.
A Sierra Club news release about the letter addressed that potential legal risk. It cited Susan Gary, University of Oregon law professor emerita and an expert on fiduciary duty, who said that since Vanguard has called climate change a material risk, failing to address it could violate several fiduciary duties. "Vanguard should be concerned that if it is in breach of these fiduciary responsibilities, its customers could have grounds for a class-action suit," Ms. Gary said.
The letter calls on Vanguard to escalate engagement and improve proxy voting on corporate climate transition and to "shift investment policies," including more rigorous climate risk criteria and analysis across its entire portfolio, and more investment products that are on a zero-emissions pathway.
It concludes with a demand that Vanguard release a plan with concrete steps it will take to address climate risk.
