Skip to main content

ESG investing: Where your money can reflect what matters to you

What is ESG investing?

ESG investing is a growing category of investment choices that blend environmental, social, and governance factors into traditional investment evaluations. You may hear the term used interchangeably with "socially responsible investing (SRI)" and "sustainable investing."

Environmental: conservation and protection of the natural environment

Examples:

  • Air emissions and air quality.
  • Energy use and conservation.
  • Natural resources and land use.
  • Waste management and water quality.
  • Hazardous materials use.

Social: Relationships with employees, suppliers, clients and communities

Examples:

  • Labor standards and employee relations.
  • Production quality and safety.
  • Local community impact.
  • Equal employment opportunities.
  • Health care, education, and housing services.

Governance: Standards for company leadership, risk controls and shareholder rights.

Examples:

  • Ethical business practices.
  • Board independence and diversity.
  • Voting rights.
  • Executive pay vs. employee pay.
  • Account and tax transparency.

Discover Vanguard's ESG lineup

Our ESG funds invest solely in stocks, but each differs in style, breadth, and degree of diversification.


INVESTMENT TYPE

Mutual Fund

ESG STRATEGY

Integrated

MANAGEMENT STYLE

Actively managed (approx. 40–50 stocks)

GEOGRAPHIC COVERAGE

U.S. and international


INVESTMENT TYPE

ETF

ESG STRATEGY

Exclusionary

MANAGEMENT STYLE

Indexed (approx. 1,500 stocks)

GEOGRAPHIC COVERAGE

U.S. only


INVESTMENT TYPE

ETF

ESG STRATEGY

Exclusionary

MANAGEMENT STYLE

Indexed (approx. 3,000–4,000 stocks)

GEOGRAPHIC COVERAGE

International only


INVESTMENT TYPE

Mutual Fund

ESG STRATEGY

Exclusionary

MANAGEMENT STYLE

Indexed (approx. 500 stocks)

GEOGRAPHIC COVERAGE

U.S. only

Gaining momentum

Thanks to better information for decision-making and competitive returns, ESG investing is in the mainstream. It's driven by individuals who embrace the idea that their investment objectives and personal values aren't mutually exclusive.

For investors in the United States, there are more than 350 ESG funds and ETFs (exchange-traded funds) available, representing $89 billion in assets under management.*

The chart shows a decade of growth in ESG investments from about $30 billion in assets under management in 2009 to $89 billion in 2019.

Source: Morningstar Direct. Data as of December 31, 2018

Reliable reporting & research

Investment managers and investors now have more information on how ESG factors impact companies, allowing them to make better decisions.

More than 11,000 companies worldwide report on how they incorporate ESG matters into their business strategies, resources, and operations. In addition, 125 organizations produce research on the ESG investment landscape.

Earning competitive returns

Some investors believe ESG investing means sacrificing returns. But recent research suggests ESG investing can lead to comparable returns—with some studies suggesting companies that pay attention to ESG factors can even outperform in the long run.**

Either way, keep in mind that, as with traditional mutual funds and ETFs, each ESG fund is different. You should pay close attention to a fund's strategy and approach.


Our dedication to responsible investing

Vanguard has been managing ESG investment products for almost 20 years, starting with our FTSE Social Index Fund launched in 2000. It's now the largest ESG-screened index fund in the United States.

For more than 40 years, we've taken a stand for all investors while advocating for improved corporate governance in the market. As a signatory to the United Nations-supported Principles of Responsible Investment External site, we encourage companies to conduct business in a socially conscious way.

Investment stewardship

We work to ensure public companies act and operate in a way that creates long-term value for fund shareholders. Our Investment Stewardship team is a leader in global governance among asset managers.

Corporate stewardship

We're committed to investing in our workplace, supporting our local communities, and developing investment products, services, and infrastructure to serve our clients' interests.

Investment management

We embrace the same investing principles across all of our products: clear goals, broad diversification, low costs, and a long-term view.

REFERENCE CONTENT

Layer opened.

ESG strategies for socially conscious investors

Not all ESG strategies are the same. Most ESG funds apply one of the following:

ESG integration

Regularly including ESG factors alongside the traditional investment analysis performed by active fund managers. This strategy doesn't require the fund to rule out any company, industry, or country simply because it's involved in a business activity that may be objectionable to some. Example: The portfolio manager chooses to include the stock of a well-performing energy company that is thoughtfully navigating the transition from fossil fuels to sustainable resources.

Portfolio screening

Exclusionary. Excluding or underweighting certain sectors, countries, and securities. Example: Ruling out companies that manufacture or sell tobacco or guns.

Inclusionary. Investing in sectors or companies with higher ESG ratings than their industry peers or other investment opportunities. Example: A mining company that's inherently risky environmentally but ranks high on managing the environmental impacts of its products and services.

Advocacy

Using resources to positively influence corporate behavior on ESG-related issues. Examples: Fundraising for charitable organizations or donating to the organizations to impact a specific cause, public activism, encouraging action at a local level, and directly communicating with a company or policymaker.

Impact investing

Targeting investments, often made in private markets, to generate positive societal or environmental impact and a financial return. Example: Investing in companies developing renewable energy sources.