Vanguard Group is also joining the growing group of socially responsible ETFs with the launch of its first two strategies that cover environmental, social and governance, or ESG, principles.
On Thursday, Vanguard rolled out the Vanguard ESG U.S. Stock ETF (NYSEArca: ESGV) and the Vanguard ESG International Stock ETF (NYSEArca: VSGX), which have a 0.12% and 0.15% expense ratio, respectively.
“Vanguard’s new ETFs can serve as core components of a portfolio for individuals, institutions, and advisors who wish to invest in broadly-diversified, low-cost ETFs screened for certain ESG criteria,” Matthew Brancato, head of Vanguard’s Portfolio Review Group, said in a note. “At the same time, investors should recognize that funds with ESG screens may perform differently than the broad market due to the exclusion of stocks of certain companies.”
The new ETFs cover more than 80% of the U.S. equity market capitalization and nearly 70% of the international equity market capitalization, with a focus on those companies that adhere to ESG principles.
The Vanguard ESG U.S. Stock ETF tries to reflect the performance of the FTSE U.S. All Cap Choice Index, an ESG-screened, market-cap-weighted benchmark comprised of large-, mid-, and small-cap U.S. stocks.
The Vanguard ESG International Stock ETF’s tries to reflect the performance of the FTSE Global All Cap ex U.S. Choice Index, an ESG-screened, market-cap-weighted benchmark comprised of large-, mid-, and small-cap stocks in developed and emerging international markets, excluding the U.S.
Companies Excluded From New ETFs
The new ESG ETF’s underlying indices exclude companies producing adult entertainment, alcohol and tobacco products, conventional and controversial weapons (including civilian firearms), fossil fuels, gambling activities, and nuclear power. The indices also exclude companies that do not meet certain diversity criteria, as well as the labor, human rights, anti-corruption, and environmental standards defined by the Ten Principles of the United Nations Global Compact.
“The focus on standardized definitions and consistent ESG criteria allows us to adhere to a rules-based index methodology,” Tony Campos, FTSE Russell’s Director of ESG Product Management, said in a note. “Our team of over 60 analysts leverages and analyzes company-level data in documents like annual reports, sustainability reports, and corporate websites to identify and structurally screen out securities to create the FTSE US All Cap Choice Index and the FTSE Global All Cap ex US Choice Index,”
For more information on new fund products, visit our new ETFs category.