Does Vanguard Have an ESG ETF?

Industries that are often shunned by those focused on social issues include big oil, big tobacco, and defense contractors. Companies in these categories can be hard to avoid without forgoing mutual funds and exchange-traded funds (ETFs) altogether. 

Meanwhile, investors who want their contributions to increase the impact of socially-conscious companies find themselves in a conundrum. Do they:

1. Choose ETFs that include a few promising stocks mixed in with other, less-value-based assets, or
2. Do they pass on such funds and instead fill portfolios with individually-selected securities?  

Enter ESGs – specialized funds that focus on values-based investing. They were designed as a solution for those who don’t want their cash used for certain types of products and services – and more importantly, for those who do want their cash to support the growth and expansion of companies that align with their values. 

So, what is an ESG fund exactly, and are such funds available from reputable firms? For example, does Vanguard have an ESG ETF? 

What Is An ESG Fund?

The acronym ESG stands for environmental, social, and/or governance-based, and it indicates a focus on certain core values.

On the environmental side, holdings might include companies and industries that score high on their consideration for ecology, focus on green initiatives, and the prevention of further climate change. 

The “social” in ESG refers to a company’s relationships with stakeholders – and that includes everyone from employees to suppliers to members of the community. Shareholders are stakeholders in this equation, but they aren’t the only stakeholders taken into account when business decisions are made. 

Finally, under the heading of governance, ESG considers how companies’ leaders create and execute on policies and procedures. Issues like executive pay, compliance with laws and regulations, and handling of diversity and equity concerns are current high-profile governance considerations.  

How Do You Know If A Fund Is ESG?

The concept of socially-responsible investing dates back to the 1960s. There was a comparatively small push to divest funds from tobacco companies, gun manufacturers, and companies doing business with South Africa, which practiced apartheid at the time. This movement was often referred to as Socially Responsible Investment (SRI), and it focused primarily on where NOT to invest. 

In 2005, the term ESG was first used to describe companies that rated high on ESG factors. Instead of focusing on where NOT to invest, ESG-based investing focused on which companies were meeting ESG standards – preferably while still turning a profit. 

Since then, global ESG assets under management have increased exponentially – and the pace of growth is accelerating as social justice and climate change take center stage. In 2021, more than $649 billion moved into global ESG-focused funds – a substantial increase from 2020’s $542 billion and 2019’s $285 billion. That’s approximately 10 percent of the world’s fund assets. 

Because ESG investing has become a priority for many investors and is poised to grow even further in the coming decades, a majority of ESG funds clearly label their ESG designation in the name or the fund objective.

Does Vanguard Have an ESG ETF?

Vanguard is one of the most reputable players in the otherwise crowded brokerage industry. The company dates back to 1975, and it was founded by John Bogle – the man who is credited with inventing the concept of the index funds that later formed the foundation for ETFs.

As of early 2021, Vanguard had roughly $7.2 trillion in assets under management. The firm may be best known for the fact that it keeps expenses as low as possible, so clients are better able to grow their wealth. 

Vanguard has a small collection of ESG ETFs that vary in characteristics like expense ratio, asset class, level of risk, and historical returns. Each fund’s holdings are selected using strict criteria such as the inclusion or exclusion of specific sectors or the focus on environmental outcomes. Those criteria are, of course, in addition to generating shareholder returns. 

How Many ESG Funds Does Vanguard Have?

At the moment, Vanguard has five ESG funds, all of which have an inception date of September 2018 or later. Key information for each option includes: 

Vanguard ESG International Stock ETF (VSGX)

• Asset Class – International
• Category – Foreign Large Blend
• Risk Potential – 5
• Expense Ratio – 0.12 percent
• Fund Total Net Assets – $3.2 billion (as of 12/31/2021)

Vanguard ESG U.S. Corporate Bond ETF (VCEB)

• Asset Class – Bond
• Category – Intermediate-Term Bond
• Risk Potential – 2
• Expense Ratio – 0.12 percent 
• Fund Total Net Assets – $294.1 million (as of 12/31/2021)

Vanguard ESG U.S. Stock ETF (ESGV)

• Asset Class – Stock
• Category – Large Blend 
• Risk Potential – 4
• Expense Ratio – 0.09 percent 
• Fund Total Net Assets – $6.5 billion (as of 12/31/2021)

Vanguard FTSE Social Index Fund Admiral Shares (VFTAX)

• Asset Class – Stock
• Category – Large Growth 
• Risk Potential – 4
• Expense Ratio – 0.14 percent 
• Fund Total Net Assets – $16.8 billion (as of 12/31/2021)

Vanguard Global ESG Select Stock Fund Investor Shares (VEIGX)

• Asset Class – Stock 
• Category – World Stock 
• Risk Potential – 4
• Expense Ratio – 0.55 percent 
• Fund Total Net Assets – $745.4 million (as of 12/31/2021)

How Do I Choose an ESG Fund?

With all of this in mind, the most common question that investors have is, “How do I pick the best ESG ETF?” Fortunately, the answer is simple. You use the same criteria to evaluate ESG funds as you would any other fund you are considering for your portfolio, then add in specific factors related to ESG impact. 

• How do the asset class, category, and risk potential fit in with the rest of your portfolio – and with your investment goals? 
• How does the expense ratio compare to returns? Specifically, is the higher expense ratio of an actively managed fund offset by higher returns? 
• What area is most important to you when it comes to making an impact? 
• Is the fund actually making an impact? This information should be available in an impact report. 

Remember, the fact that a fund puts ESG in its name or its objective doesn’t mean it is working towards the issues that are most important to you. Careful evaluation of the fund’s underlying assets, how the fund is making an impact, and whether the fund fits into your larger portfolio is the best way to choose an ESG fund. 

What Is The Best ESG Fund?

Choosing the best ESG fund isn’t a one-size-fits-all sort of thing. The best ESG fund for one investor might be completely different from the best ESG fund for another investor. It comes down to your financial goals, the values that you hold in highest priority, and how the ESG fund you are considering fits in with the rest of your portfolio. 

With that said, some ESG funds are fundamentally better than others. These are some that have earned a solid reputation for their strong historical returns, reasonable expense ratios, and effective management: 

• 1919 Socially Responsive Balanced Fund (SSIAX) – 15.6 percent five-year return 
• AllianceBernstein Sustainable Global Thematic Fund (ATEYX) – 21.5 percent five-year return 
• iShares Global Clean Energy ETF (ICLN) – 25.7 percent five-year return 
• iShares MSCI USA ESG Select ETF (SUSA) – 20.3 percent five-year return 
• Parnassus Core Equity Investor (PRBLX) – 18.7 percent five-year return 
• Shelton Green Alpha Fund (NEXTX) – 30.1 percent five-year return 
• Vanguard FTSE Social Index Fund (VFTAX) – 23.5 percent return since inception

As always, past returns do not guarantee future results. 

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