Thinking through the challenges of ESG investing

June 3, 2021

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Plan sponsors and their consultants regularly ask how we think about the environmental, social, and governance (ESG) factors that can affect long-term value creation for participants. We're pleased to provide two updated resources to help you think through the complexities surrounding ESG investing.

Resources for our clients

Vanguard has a fiduciary duty to maximize long-term investment returns for our clients. We believe that material ESG risks can impact long-term value creation for the companies in which our funds invest. Therefore, ESG matters are relevant to all Vanguard investors worldwide.

Vanguard currently integrates ESG considerations into our product design and investment processes in three ways:

  • We engage with the portfolio companies in our index funds through our investment stewardship program.
  • We allocate capital to seek sustainable returns through our external managers' incorporation of ESG factors into their security selection process for many of our active funds.
  • We develop products that allow investors to avoid certain ESG risks or companies.

These three pillars of our ESG strategy are explained in Vanguard's Approach to ESG: Our Investment Products and Processes.

In addition, we provide plan sponsors with Evaluating ESG Funds: A Fiduciary's Guide. This three-page guide includes an update on U.S. Department of Labor regulations covering ESG investing in retirement plans.

The guide is a framework for fiduciaries that has been designed to help plan sponsors evaluate the right ESG approach for their defined contribution plans. It includes practical steps ranging from foundational behaviors to an expansive and holistic ESG approach. Currently, we are sharing the first of three levels of considerations, covering various ESG practices. We will provide additional details as we analyze the changing regulatory environment.

A shared goal

We know plan sponsors are queried frequently on ESG matters. Vanguard will continue to share our best thinking related to the evolving ESG landscape so that you can make informed decisions on behalf of your plan. After all, we share the same goal—helping your participants experience long-term financial well-being.

If you have questions, please contact your Vanguard representative.

Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • ESG funds are subject to ESG investment risk, which is the chance that the stocks or bonds screened by the index sponsor for ESG criteria generally will underperform the market as a whole or that the particular stocks or bonds selected will, in the aggregate, trail returns of other funds screened for ESG criteria.