Learn about the basics of ESG investing, its potential benefits for your portfolio, Vanguard’s ESG lineup, and who ESG investing is best for.
How to invest

How does ESG investing work?

5 minute read
  •  
September 29, 2021
How to invest
Financial terms
Article
Page
ESGs
Social responsibility

At a glance

  • In general, ESG (environmental, social, governance) funds prioritize investing in companies that are screened for environmental, social, or governance criteria.
  • It’s best to choose ESG funds that most align with your investing goals.
  • ESG benefits can be both financial and personal.
  • Our ESG fund offer incorporates Vanguard’s principles for investing success.


You’ve probably thought about investing in industries like technology or real estate, but what about investing in your values?

Many investors search for ways to align their principles, like cleaner air or ethical business practices, with their asset growth. ESG investing offers the opportunity to choose investments based on your personal values.

What’s ESG investing?

ESG funds allow you to invest in companies or industries that meet specific criteria. This criteria is categorized as environmental, social, or governance-based. For example*:

  • Environmental: how a company or industry performs as a steward of the natural environment.
  • Social: how a company manages relationships with its employees, suppliers, clients, and communities.
  • Governance: how a company’s board and leadership handle executive pay and shareholder rights.

Although it’s not a new option, this type of investing is increasing in popularity.

ESG strategies*

There are different methods for ESG investing. For example, some funds practice investment screening, which involves excluding certain sectors or securities or including sectors or companies with higher ESG ratings than their industry peers.

The benefits of ESG funds

These funds came about as more and more people wanted investing options that satisfied both their financial goals and personal values. For example, Vanguard ESG International Stock ETF may be a good option if you’re seeking international exposure but want to avoid investing in tobacco companies. Our research hasn’t found a material difference in the returns of ESG and non-ESG funds.**  

Historically, investors had to ‘check their values at the door’ when it came to their investments. Today, there are high-quality products available that allow folks to have peace of mind about what they’re invested in without compromising their investment strategy.

– Carl Ozeck, Senior Wealth Advisor with Vanguard Personal Advisor Services®

ESGs and your portfolio

It’s best to select funds that’ll help you meet your long-term goals. ESG investing doesn’t have to be all-or-none—some investors use ESG funds in parts of their portfolio but stop short of changing their entire lineup. With an ESG ETF (exchange-traded fund), you can begin investing in ESGs for only the cost of one share. Use the same approach you would with other funds—consider if the fund fits your investing strategy and goals.

Browse our ESG lineup

Learn more

Our ESG offer

Vanguard embraces the same investing principles across all our products—clear goals, broad diversification, low costs, and a long-term view—and our ESG funds are no exception. They’re even part of our enduring investment story. Our ESG lineup includes mutual funds and ETFs, as well as active and passive management styles. With our ESG product offer, you don’t have to compromise diversification.

“Vanguard has been offering ESG funds for more than 20 years. We believe they are enduring investment options for anyone interested in expressing personal values through investment decisions,” said Kaitlyn Caughlin, head of Vanguard Portfolio Review Department.

More than 30 million investors globally look to us to safeguard and grow their investments, a responsibility we don’t take lightly. We’re dedicated to your best interests and want to give you the best chance for investment success. Our lineup of ESG funds is just one more way we’re advocating for you.

Most Viewed

Vanguard Core-Plus Bond Fund features the diversification of bond funds with the potential for higher yields through proven expert management.
Financial management
Vanguard Core-Plus Bond Fund launches
Vanguard Core-Plus Bond Fund features the diversification of bond funds with the potential for higher yields through proven expert management.
Vanguard news
Company news
Start with this step-by-step guide to opening a personal investment account, such as a general investing brokerage account or an IRA.
How to invest
Ready to invest? See how to open an account
Start with this step-by-step guide to opening a personal investment account, such as a general investing brokerage account or an IRA.
Vanguard news
Start investing
Vanguard finds it will take a lot more inflation than we expect to affect diversification in a balanced portfolio.
Markets and economy
Inflation, diversification, and the 60/40 portfolio
Vanguard finds it will take a lot more inflation than we expect to affect diversification in a balanced portfolio.
Vanguard news
Market & economy insights
A U.S. debt default, unlike a government shutdown, would be unprecedented. Here’s why we don’t think it will occur.
Markets and economy
Potential U.S. debt default: Why to stay the course
A U.S. debt default, unlike a government shutdown, would be unprecedented. Here’s why we don’t think it will occur.
Vanguard news
Market & economy insights
Could inflation at rates we’ve seen in 2021 persist in 2022 and beyond? It’s not our base case.
Markets and economy
Inflation beyond the current spike
Could inflation at rates we’ve seen in 2021 persist in 2022 and beyond? It’s not our base case.
Vanguard news
Market & economy insights
With updates based on Vanguard’s principles of investing success, the 4% rule can help FIRE investors achieve success in retirement.
Planning for retirement
Fueling the FIRE movement: Updating the 4% rule for early retirees
With updates based on Vanguard’s principles of investing success, the 4% rule can help FIRE investors achieve success in retirement.
Article
Early retirement

*These are examples of general strategy and criteria that can be used for ESG investing. The advisors of Vanguard ESG funds may not apply this same strategy or criteria.

**Source: Jan-Carl Plagge and Douglas Grim, 2020. Have investors paid a performance price? Examining the behavior of ESG equity funds.

For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

All investing is subject to risk, including the possible loss of the money you invest.

Diversification does not ensure a profit or protect against a loss.

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 markets as a whole or that the particular stocks or bonds selected will, in the aggregate, trail returns of other funds screened for ESG criteria.