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What is ESG?

ESG investing refers to the inclusion of environmental, social and governance factors in one or more parts of the investment process or product design.

Environmental: How companies and industries manage their impact on the environment. This could include climate change, deforestation, pollution and waste management.

Social: How a company or industry manages its impact on society. This could include how they treat employees and suppliers, community engagement and health and safety.

Governance: Whether a company has good business practices. These could include the diversity of a company’s board and leadership team, executive pay or how they handle tax.

When discussing the broader ESG investment landscape there are a variety of approaches to choose from, some having very different objectives.

The five approaches to ESG investing described below are a useful starting point to understand the options available.

Excludes companies based on their products or business activities (e.g. tobacco and fossil fuels) that conflict with certain values.
Invests in companies or sectors considered to be more effective in the management of ESG risks, including those demonstrating meaningful improvement in the management of those risks.
Systematic inclusion of material ESG information in investment analysis and decision making.
Targeted investments with the dual objective of generating financial return in addition to positive ESG-related impact.
The responsible use of proxy voting and engagement activities by institutional investors “to maximise overall long-term value including the value of common economic, social and environmental assets, on which returns and clients’ and beneficiaries’ interests depend.”
(Source: Principles for Responsible Investing)

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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