Vanguard launches two new ESG index ETFs

September 20, 2018

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Vanguard has launched two index ETFs that have an environmental, social, and governance (ESG) focus:

Each ETF seeks to track one of two broad-based FTSE Russell indexes, one consisting of U.S. equities and the other consisting of international (non-U.S.) equities. These indexes are constructed to offer broad large-, mid-, and small-capitalization equity exposure while excluding companies that do not meet certain ESG criteria.

The introduction of ESG ETFs reflects Vanguard's commitment to providing enduring, understandable, diversified investment products while addressing the evolving needs of investors. Vanguard believes that the ESG ETFs can serve as core building blocks in a balanced portfolio for clients with both a long-term investment horizon and the desire to avoid investing in companies that engage in certain business activities or display certain conduct.

"These ETFs can be core components of a portfolio for investors who wish to invest in accordance with their social objectives," said Matt Brancato, head of Vanguard Portfolio Review Group. "They bring together Vanguard hallmarks of very broad diversification and low cost with rigorous yet straightforward screening for companies with environmental, social, or governance challenges."

The indexes exclude the stocks of companies producing adult entertainment, alcohol and tobacco products, conventional and controversial weapons (including civilian firearms), fossil fuels, gambling activities, and nuclear power. The indexes also exclude the stocks of companies that do not meet certain diversity criteria, as well as the labor, human rights, anti-corruption, and environmental standards defined by the Ten Principles of the United Nations Global Compact.

In delivering global ESG data and indexes, FTSE Russell's dedicated sustainable investment team uses a transparent, straightforward, and understandable screening methodology. "The focus on standardized definitions and consistent ESG criteria allows us to adhere to a rules-based index methodology," said Tony Campos, FTSE Russell's Director of ESG Product Management. "Our team of over 60 analysts leverages and analyzes company-level data in documents like annual reports, sustainability reports, and corporate websites to identify and structurally screen out securities to create the FTSE US All Cap Choice Index and the FTSE Global All Cap ex US Choice Index," he adds.

With thousands of stocks in each portfolio, the ESG ETFs at their outset will be the most diversified across all capitalization ranges. Both ETFs are among the very few that offer all-cap exposure to their markets; after applying the ESG screens, the ETFs will cover more than 80% and nearly 70% of the U.S. and international equity market capitalization, respectively.

Vanguard ESG U.S. Stock ETF has an estimated expense ratio of 0.12% and Vanguard ESG International Stock ETF has an estimated expense ratio of 0.15%—currently among the lowest in their respective categories of ESG ETFs. Vanguard Equity Index Group will serve as advisor.

Since the introduction of the Vanguard FTSE Social Index Fund in 2000, Vanguard has offered socially responsible funds to help investors with certain preferences reach their goals. In fact, FTSE Social Fund is now the largest ESG-screened index fund in the United States.* Investors in all Vanguard funds, including the new ESG ETFs, benefit from the ongoing stewardship and engagement activities of Vanguard's Investment Stewardship team, which engages with companies to employ governance practices that align with the long-term interests of our clients.

*Sources: Vanguard, Morningstar. Data are as of August 31, 2018.

Notes:

  • Vanguard ETF Shares are not redeemable with the issuing fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
  • All investing is subject to risk, including the possible loss of the money you invest. Investments in stocks issued by non-U.S. companies and governments are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets. Diversification does not ensure a profit or protect against a loss.