Many investors are interested in adding ESG (environmental, social, and governance) factors to their investments, and want to include in their portfolio companies that align with their values. Developing products that allow investors to avoid or mitigate exposure to certain ESG risks (such as fossil fuels, guns, pollution, carbon usage) is just one way Vanguard incorporates ESG considerations into their product and investment processes. In recent years, Vanguard has added more ESG mutual funds and exchanged traded funds (ETFs) to their line up of funds.
Their June 2021 Vanguard Perspective blog Our approach to ESG investing: Engage, allocate, and avoid describes Vanguard's approach to designing ESG funds, such as the Vanguard ESG U.S. Stock ETF (ESGV), Vanguard ESG International Stock ETF (VSGX), Vanguard ESG U.S. Corporate Bond ETF (VCEB), Vanguard FTSE Social Index Fund Admiral™ Shares (VFTAX).
The first two funds are exclusionary (or negatively screened) products. Vanguard ESG U.S. Stock ETF and Vanguard ESG International Stock ETF, that are benchmarked to the FTSE Global Choice Index Series. Read more.
The Global Choice framework allows investors to align their investment choices with their values by enabling them to invest in companies that are carefully screened for product- and conduct-related issues. Once the stock universe is screened by FTSE Russell, the index is constructed transparently using market-capitalization weights.
Vanguard's new ESG fixed income ETF is getting noticed, is another Vanguard's blog, which described their new bond index fund in their ESG lineup.
For more information on how the Vanguard index funds select the companies that are included in their funds, read this article about FTSE Global Index construction methodology.
We feel good about these Vanguard ESG funds and recommend them to our clients who hold their assets at Vanguard. In addition, we use these funds in varying percentages in our own ESG portfolios at TD Ameritrade. Plus, for the 401K that our business is setting up for itself next year, we'll be offering these Vanguard ESG funds to our team members for their own retirement savings options.