How to invest

How to choose ESG funds that are right for you

5 minute read
  •  
March 15, 2022
How to invest

At a glance

  • Invest in funds that reflect your values with ESG investing.
  • Learn about the different types of ESG strategies.

Everyone has their own way of being environmentally and socially responsible. As an investor, you have the option of investing in funds that mirror your values. 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:

  1. 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. This is an important way our asset managers voice concerns about material ESG risks. 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 ESG material risks.
  2. 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.
  3. 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 5 ESG funds: 4 index funds and 1 active fund. Learn about our approach to adding new funds to our ESG lineup.

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. Most of our funds are indexed and follow an exclusionary strategy that omits companies that don't meet certain ESG criteria. We currently have one active fund with an inclusionary strategy that includes companies making strides toward ESG practices.

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

  1. 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.

  2. 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.

Interested in our ESG fund offerings?

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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.

*There are a variety of ESG investing strategies, however, Vanguard does not employ them all. For more information, please refer to a fund's prospectus.

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 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’s assessment of a company, based on the company’s level of involvement in a particular industry or the index provider’s own ESG criteria, may differ from that of other funds or of the advisor’s or an investor’s assessment of such company. As a result, the companies deemed eligible by the index provider 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’s proper identification and analysis of ESG data.