Our approach to ESG
Core to our mission to give investors the best chance for investment success is our duty to maximise long-term investment returns for our funds' investors. And we believe that material ESG (environmental, social, and governance) risks can affect this long-term value creation in the companies in which our funds invest.
As a result, ESG considerations are integrated into our product and investment processes primarily through allocating capital to portfolio companies in our active funds, developing products that allow investors to avoid or mitigate exposure to certain ESG risks, and engaging with the portfolio companies in our index funds.
We allocate capital to sustainable returns in our active funds
Many of our active fund managers explicitly consider ESG factors in their investment process. Because ESG factors affect a company’s long-term value, they often form an important part of the risk mosaic, even for those funds without an explicit ESG focus. For example, they may consider how social and environmental factors might affect a company’s future earnings.
We engage with the portfolio companies in our equity funds
As pioneers of indexing, we believe in the power of passive investing. But that doesn’t mean Vanguard is passive when it comes to ESG risks. Our Investment Stewardship team actively engages with portfolio companies to address material ESG issues. We expect companies to disclose significant risks, develop strategies to reduce them and report on progress, protecting long-term shareholder value.
We develop products that allow investors to avoid certain ESG risks
We give investors a choice in what they invest in—and what they don’t invest in. We develop products that allow investors to avoid exposure to companies that are not aligned with their values, or to mitigate certain ESG risks. Vanguard’s ESG products track indices that use screens to avoid investing in certain sectors and companies, while maintaining broad diversification.
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