Vanguard launches pair of passive ESG funds

Vanguard launches pair of passive ESG funds

Fund house giant Vanguard has today launched two passive funds with an environmental, social and governance tilt.

Vanguard said it launched the Vanguard ESG Developed World All-Cap Equity Index and Vanguard ESG Emerging Markets All-Cap Equity Index funds to provide exposure to global markets from an ESG standpoint.

The funds are designed to give value to investors by acting as core equity building blocks for ESG-friendly portfolios by excluding companies that fail to meet independent ESG standards.

They will follow selected benchmarks from the FTSE Global Choice family, screening out companies involved in non-renewable energy, weapons, and ‘vice’ products such as alcohol, tobacco and gambling.

Companies that fail to meet the UN Global Compact Principles on labour rights, human rights, the environment and anti-corruption are also excluded.

Investors will pay an ongoing charge of 0.2 per cent for the developed world portfolio and 0.25 per cent for the emerging markets equivalent.

Today’s addition brings Vanguard’s total responsible investment offering to four funds, as the asset manager already offers an Ireland-based version of the ESG Developed World All Cap Equity Index fund and a Vanguard SRI Developed Europe Index fund.

Increasing Vanguard’s passive offering with an ESG tilt will help the fund house capitalise on two of the biggest trends to hit the asset management sector over the past few years.

A more stringent focus on costs has seen investors pile into passive portfolios at the expense of active management, while growing environmental concerns have seen ESG products' popularity rocket.

Matthew Piro, Vanguard’s head of portfolio review department for Europe, said: “Our clients have a wide variety of humanitarian, ethical, environmental and social concerns, and many want to put their money to work in a way that aligns with their values, while still meeting their investment goals.”

“As such we’ve designed these funds to help ESG-conscious, long-term investors put together high-quality, diversified equity index portfolios at a low cost. Vanguard will continue to seek ways to deliver long-term ESG offerings to meet the evolving needs of investors.”

Tom Sparke, investment manager at GDIM, said Vanguard’s launch felt like a “long time coming” as an ESG filter on passive funds had been missing for “some time”.

He added: “We run both passive and ESG funds so this is a highly relevant launch and one that we will look at closely. A negative screen is always going to be difficult to define as there are many differing opinions on what should be excluded or included.

“That said, something is better than nothing and this is a really good first step in the process and opens up the conscientious investment universe to those who believe that trackers are the best way to invest.”

Vanguard, known for its low cost products, is also set to join the advice industry, having received regulatory permissions from the Financial Conduct Authority to provide retail advice in the UK in January.