Vanguard Makes ESG Debut
Second-largest ETF issuer finally tosses its hat into the socially responsible investing ring.
On Thursday, Sept. 20, Vanguard launched two new environmental, social and governance (ESG) ETFs, the first such funds from the issuer.
The Vanguard ESG U.S. Stock ETF (ESGV) and the Vanguard ESG International Stock ETF (VSGX) track domestic and international companies, respectively, that meet certain environmental, social and governance criteria.
What's more, the two ETFs will carry Vanguard's signature low price tags: ESGV charges just 0.12%, while VSGX charges 0.15%.
The combination of ultra-low expense ratios and high brand loyalty among Vanguard investors could potentially be a game-changer for ESG ETFs, which, though highly publicized, have struggled to live up to their promise of long-term asset growth.
The two ETFs list on the Cboe exchange; Cboe Global Markets is the parent company of ETF.com.
About ESGV & VSGX
ESGV tracks the FTSE US All Cap Choice Index, a domestic equity index, while VSGX tracks the FTSE Global All Cap ex US Choice Index, which covers developed and emerging markets outside the U.S. (read: "Vanguard Makes Unexpected ETF Filing").
Both market-cap-weighted indexes pull from companies across the full range of sectors and sizes, with some exceptions.
Exclusionary screens eliminate any company whose business operations involve adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling and nuclear power.
In addition, companies that fail to meet the United Nations' 10 Global Compact Principles are also excluded. These include principles such as the abolition of forced and child labor, a dedication to environmental responsibility and human rights, and an actively anti-corruption stance.
On top of this, prospective constituents must meet "appropriate" diversity criteria, though what this means is not specified in the funds' prospectus.
Fee Wars Come To The Space
ESGV and VSGX are the first ESG ETFs from Vanguard, which currently offers only one other ESG investment in a mutual fund wrapper, the Vanguard FTSE Social Index Fund (VFTSX).
According to the press release announcing the filing, these two ETFs were specifically designed to complement that mutual fund, which has a $3,000 minimum investment.
ESGV and VSGX also cost less than that fund, which carries an expense ratio of 0.20%.
Additionally, ESGV is cheaper than all other competitors in its category. Currently, the cheapest domestic stock ESG ETF is the iShares MSCI U.S.A. ESG Optimized ETF (ESGU), which costs 0.15%.
Meanwhile, VSGX is the first of its kind. Other international ex-U.S. ESG ETFs focus on either developed markets or emerging ones; while other global total market ESG funds also include the U.S.
Vanguard Moves Thoughtfully
Historically, Vanguard has proven selective in the types of funds it chooses to launch. For example, though the firm has had ETFs on the market since 2001, it had only launched its first active ETFs this year (read: "Vanguard Active ETFs Slow To Grow").
To date, the firm has just 78 ETFs, together totaling assets under management of $927 billion.
With the weight of Vanguard's brand and economies of scale behind them, ESGV and VSGX could easily become superstars in the ESG space, which has seen steady if not particularly remarkable growth.
Since Jan. 1, for example, socially responsible funds have only brought in $1.65 billion. That represents a significant portion of the segment's current total of $7.49 billion.
Contact Lara Crigger at [email protected]
