At a glance
- Invest in funds that reflect your values with ESG investing.
- Learn about the different types of ESG strategies.
How to invest
How to choose ESG funds that are right for you
5 minute read
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March 15, 2022
How to invest
Understanding investment types
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ESGs
Everyone has their own way of being environmentally and socially responsible. As an investor, you have the option of investing in funds that align with your personal preferences. This is known as ESG investing, and it allows you to invest in companies that meet certain environmental, social, and governance criteria. Examples of this criteria might include adequate labor conditions, sustainability efforts, certain anti-corruption policies, or other standards of operation.
Choosing an ESG fund
If ESG investing is a priority for you, you’ll want to choose ESG funds that will also meet your investment needs. With a little research, you can learn which ESG funds best complement your portfolio and reflect the issues that matter to you most. Here’s how:
- First, understand Vanguard’s existing ESG principles and our ethical approach to all our funds. We already incorporate the following practices in our everyday processes:
- ESG integration. Our fixed income and active fund managers consider ESG factors as part of their traditional investment analysis. Fund managers aren’t required to rule out companies, industries, or countries simply because they’re involved in business activities that may be considered objectionable. However, they still look to ensure a stock or bond is properly priced when considering ESG risks. For example, a fund manager may choose not to invest in a company because they feel the stock is overpriced due to controversies associated with the unprofessional behavior of senior leadership.
- Investment stewardship. On behalf of our internally managed equity funds, Vanguard’s Investment Stewardship team engages directly with company executives and board members to better understand how their companies address material risks, including material ESG risks.
- If you want to go a step further and invest in ESG products, be sure to do some research into the strategies that different ESG funds use to select investments in their portfolios. Here are a couple of examples of the types of ESG strategies you may see:
- Portfolio screening. These funds can be active or index and may include, exclude, or underweight specific companies, sectors, countries, or securities. Exclusionary screening might rule 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.
- Impact investing. These funds are typically active and seek to generate positive financial returns and measurable positive ESG impact. For example, a fund might invest in a company developing renewable energy sources they feel will outperform other energy options. Due to the high level of research this strategy requires, these funds typically invest in a smaller number of companies. With that, these funds can be riskier and more suitable as satellite holdings.
- Consider whether you want to invest in an active or index ESG fund (or both). Index funds track an ESG-appropriate index while actively managed funds, which are generally more expensive, take a more personalized look at companies to make sure the companies fit their objective. Vanguard currently offers 7 ESG funds: 4 index funds and 3 active funds. Learn about our approach to adding new funds to our ESG lineup.
- When you’ve narrowed your search to specific ESG funds, review each fund’s investment objective and principal investment strategies to gain a clear understanding of the fund’s goals. You can find a fund's objective on the Overview page or in the prospectus. To view a fund’s prospectus, go to investor.vanguard.com, enter the fund's name in the search bar, then select the fund. Under Product summary, select View prospectus and reports.
- Review the fund’s top investments to see which companies the fund has chosen to invest in. You can find a fund's top investments by going to investor.vanguard.com, entering the fund's name in the search bar, selecting the fund, and scrolling down to Portfolio composition.
To invest in funds that reflect your values, take the time to learn about ESG strategies and the types of funds available. It’s possible to be both environmentally and socially responsible and meet your financial goals.
Discover Vanguard’s ESG lineup
Our ESG funds, which have differing investment styles and objectives, invest in stocks and bonds. They're a great way to complement your portfolio with funds that reflect your values. Some of our funds are indexed and follow an exclusionary strategy that omits companies that don't meet certain ESG criteria. For investors looking for outperformance from ESG investments, we also have three active funds that invest in companies with leading or improving ESG practices.
Fund
VEIGX
Global ESG Select Stock Fund
Investment type
Mutual fund
ESG strategy
Integrated
What's included
Management style
Actively managed (approx. 40-50 stocks)
Geographic coverage
U.S. and international
Fund
ESGV
ESG U.S. Stock ETF
Investment type
ETF
ESG strategy
Exclusionary
What's excluded
Management style
Indexed (approx. 1,500 stocks)
Geographic coverage
U.S. only
Fund
VSGX
ESG International Stock ETF
Investment type
ETF
ESG strategy
Exclusionary
What's excluded
Management style
Indexed (approx. 3,000-4,000 stocks)
Geographic coverage
International only
Fund
VFTAX
FTSE Social Index Fund
Investment type
Mutual fund
ESG strategy
Exclusionary
What's excluded
Management style
Indexed (approx. 500 stocks)
Geographic coverage
U.S. only
Fund
VCEB
ESG U.S. Corporate Bond ETF
Investment type
ETF
ESG strategy
Exclusionary
What's excluded
Management style
Indexed (approx. 200-300 bonds)
Geographic coverage
U.S. only
Fund
VBPIX
Baillie Gifford Global Positive Impact Stock Fund
Investment type
Mutual fund
ESG Strategy
Impact
What's included
Management style
Actively managed (approx. 25-50 stocks)
Geographic coverage
U.S. and international
Fund
VEOIX
Global Environmental Opportunities Stock Fund
Investment type
Mutual fund
ESG Strategy
Inclusionary
What's included
Management style
Actively managed (approx. 25 stocks)
Geographic coverage
U.S. and international
| Fund | Investment type | ESG strategy | Management style | Geographic coverage | |
| VEIGX Global ESG Select Stock Fund |
Mutual fund | Inclusionary What's included |
Actively managed (approx. 40-50 stocks) |
U.S. and international | |
| ESGV ESG U.S. Stock ETF |
ETF | Exclusionary What's excluded |
Indexed (approx. 1,500 stocks) |
U.S. only | |
| VSGX ESG International Stock ETF |
ETF | Exclusionary What's excluded |
Indexed (approx. 3,000-4,000 stocks) |
International only | |
| VFTAX FTSE Social Index Fund |
Mutual fund | Exclusionary What's excluded |
Indexed (approx. 500 stocks) |
U.S. only | |
| VCEB ESG U.S. Corporate Bond ETF |
ETF |
Exclusionary What's excluded |
Indexed (approx. 200-300 bonds) |
U.S. only | |
| VBPIX Baillie Gifford Global Positive Impact Stock Fund |
Mutual fund |
Impact What's included |
Actively managed (approx. 25-50 stocks) |
U.S. and international | |
| VEOIX Global Environmental Opportunities Stock Fund |
Mutual fund |
Inclusionary What's included |
Actively managed (approx. 25 stocks) |
U.S. and international |
×
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.
×
What's excluded
Excludes companies that:
- Produce alcohol, tobacco, gambling, and adult entertainment.
- Produce civilian, controversial, and conventional weapons.
- Produce nuclear power.
- Do not meet certain diversity criteria.
- Have violations of labor rights, human rights, anti-corruption, and environmental standards defined by UN Global Compact Principles.*
- Own proved or probable reserves in fossil fuels such as coal, oil, or gas.**
*For more information, go to unglobalcompact.org/what-is-gc/mission/principles
**This also excludes any company that FTSE determines has a primary business activity in: (a) the exploration and drilling for, as well as producing, refining, and supplying, oil and gas products, (b) the supply of equipment and services to oil fields and offshore platforms, (c) the operations of pipelines carrying oil, gas, or other forms of fuel, (d) integrated oil and gas companies that provide a combination of services listed in (a)-(c) above, including the refining and marketing of oil and gas products, or (e) the exploration for or mining of coal.
×
What's excluded
Excludes companies that:
- Produce alcohol, tobacco, gambling, and adult entertainment.
- Produce civilian, controversial, and conventional weapons.
- Produce nuclear power.
- Do not meet certain diversity criteria.
- Have violations of labor rights, human rights, anti-corruption, and environmental standards defined by UN Global Compact Principles.*
- Own proved or probable reserves in fossil fuels such as coal, oil, or gas.**
*For more information, go to unglobalcompact.org/what-is-gc/mission/principles
**This also excludes any company that FTSE determines has a primary business activity in: (a) the exploration and drilling for, as well as producing, refining, and supplying, oil and gas products, (b) the supply of equipment and services to oil fields and offshore platforms, (c) the operations of pipelines carrying oil, gas, or other forms of fuel, (d) integrated oil and gas companies that provide a combination of services listed in (a)-(c) above, including the refining and marketing of oil and gas products, or (e) the exploration for or mining of coal.
×
What's excluded
Excludes companies that:
- Produce alcohol, tobacco, adult entertainment, or nuclear power.
- Produce civilian firearms, controversial weapons, or conventional weapons.
- Do not meet certain diversity criteria.
- Operate gambling facilities or produce Genetically Modified Organisms (GMO).
- Violate certain standards defined by the Index provider's ESG controversies assessment.
- Are involved with fossil fuels such as thermal coal, oil, or gas.
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For more information about Vanguard funds or ETFs, 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.
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.
Diversification does not ensure a profit or protect against a loss.
Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.
Investments in bonds are subject to interest rate, credit, and inflation risk.
ESG funds are subject to ESG investment risk, which is the chance that the stocks or bonds screened by the index provider or advisor, as applicable, for ESG criteria generally will underperform the market as a whole or, in the aggregate, will trail returns of other funds screened for ESG criteria. The index provider or advisor’s assessment of a company, based on the company’s level of involvement in a particular industry or their own ESG criteria, may differ from that of other funds or an investor’s assessment of such company. As a result, the companies deemed eligible by the index provider or advisor may not reflect the beliefs and values of any particular investor and may not exhibit positive or favorable ESG characteristics. The evaluation of companies for ESG screening or integration is dependent on the timely and accurate reporting of ESG data by the companies. Successful application of the screens will depend on the index provider or advisor's proper identification and analysis of ESG data. The advisor may not be successful in assessing and identifying companies that have or will have a positive impact or support a given position. In some circumstances, companies could ultimately have a negative or no impact or support of a given position.