Despite concerns, ESG strategies may become a crowded trade for impact investors – so Vanguard is taking a different track

Finance

It’s a fund looking to make money from green investing.

The inclusive, actively managed Vanguard Baillie Gifford Global Positive Impact Stock Fund (VBPIX) is an environmental, social and governance product that bundles companies with positive, inclusive and sustainable intentions. 

“It’s really a fund that’s going to be investing in global equities looking to deliver long-term outperformers by doing so in investing in companies that are contributing positively to really advancing and solving some of the world’s most challenging problems, whether those be environmental or social or otherwise,” Matt Piro, Vanguard’s global head of ESG product, told CNBC’s “ETF Edge” on Monday.

While the ETF denotes socially responsible investing, that particular theme is sparking questions. The Securities and Exchange Commission has expressed concerns about the current unestablished state of ESG fund disclosure requirements across the entire industry. The agency has proposed two rule changes for the sector.

“It is important that investors have consistent and comparable disclosures about asset managers’ ESG strategies so they can understand what data underlies funds’ claims and choose the right investments for them,” SEC Chair Gary Gensler said in a May statement.

Companies held in Vanguard’s positive impact stock fund include ASML, Taiwan Semiconductor, Moderna, John Deere and Tesla, which the S&P 500 removed from its ESG index in May. Tesla’s S&P DJI ESG score dropped as a result of “codes of business conduct” and deficient low carbon strategy, as well as “claims of racial discrimination and poor working conditions at Tesla’s Fremont factory,” according to the Indexology blog.

Piro contends Vanguard’s design principles look at investment outcomes, as well as client preferences. The investment management company develops various ESG products to satisfy a range of consumer preferences, he said.

“We absolutely think this positive impact fund is well done from an active standpoint because we want to deliver on both an outperformance objective while investing in those companies that contributed positively,” Piro said.

Vanguard’s exclusionary funds adhere to strict guidelines, keeping out companies that engage in “the types of business activities that clients may not want their money invested in,” according to Piro.

The Vanguard ESG U.S. Stock ETF, for example, excludes companies with engagement in alcohol and tobacco, weapons, adult entertainment, and fossil fuels, among other activities and standards.

Do ESG funds have a future?

Many of today’s investors are “sustainability minded,” said Jon Hale, global head of sustainability research at Morningstar, in the same interview. In turn, he believes the asset management industry is receiving more demand for impact investing opportunities. 

“Sustainability happens when we make decisions that both meet our own needs but don’t compromise the ability of others in future generations to meet their own needs,” he said. “It should come as no surprise that, with more people being sustainability minded today, they would want an approach to investing that has sustainability in mind.”

Hale believes “the SEC proposal is on the right track,” suggesting a need for increased transparency in the ESG fund space – proving the sustainability of related products and confirming consumers aren’t getting “greenwashed version[s].”

The SEC did not respond to a request for comment.

The Vanguard Baillie Gifford Global Positive Impact Stock Fund came to fruition in mid-July after a restructuring of the Baillie Gifford Positive Change Equities Fund, its predecessor. The Vanguard fund is up about 6% since its adjustment this summer.

Disclaimer

Articles You May Like

Here’s what to know before ‘taking some risk off the table’ with bitcoin profits, advisor says
Why You May Need To Rethink Your Retirement, Work, And Spending
UniCredit raises stake in Commerzbank to 28% as Orcel ups ante on pursuit
Last-Minute Gift (For A Lifetime) Idea: A Child IRA For Your Kids Or Grandkids
Fed cuts by a quarter point, indicates fewer reductions ahead

Leave a Reply

Your email address will not be published. Required fields are marked *