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Clarifying the confusion
  • The adoption of environmental, social and governance (ESG) investing continues to accelerate as more investors seek out investments that reflect their humanitarian, ethical, environmental and social values. Definitions and approaches to ESG vary widely; no universal ESG strategy exists.
  • Given the many ways ESG considerations manifest in investment funds, it can be helpful for investors to be familiar with the range of approaches on offer
  • Below we describe four of the most commonly-used ESG investing strategies that investors, institutions or companies may engage in.
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This method selects investments from a universe of investments that meet specific screening criteria. There are two key types of portfolio screening:

1. Exclusionary (or negative screening)

Exclusionary-screened investments exclude certain sectors, countries, and securities from an investment universe based on specific ESG-related criteria.

2. Inclusionary (or positive screening)

Proactive investment in sectors or companies selected for higher ESG rating relative to industry peers or other opportunities.

Targeted investments with the dual objective of generating ESG-related impact in addition to some level of financial return.
The assessment of financially material ESG information in the investment research and decision-making process.
The use of various resources (internal or external) to positively influence corporate behaviour on ESG-related issues. This can include advocacy efforts, engagement with corporate decision-makers and voting in support of good governance.

What is Vanguard's approach to ESG? With more than 30 million investors globally, we think about risks and opportunities in ESG in the context of delivering long-term value to investors.

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ESG considerations are integrated into product design and investment processes across our funds.

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Vanguard takes seriously its responsibility to represents the interests of more than 30 million people who invest in Vanguard funds.

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Vanguard's Investment Stewardship team actively engages with portfolio companies and their boards to discuss material risks, ranging from business and operational risks to environmental and social risks. Read our latest report.

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