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Vanguard launches two low cost ESG equity index funds

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Vanguard has launched two new Environmental, Social, Governance (ESG) equity index funds which will “appeal to investors wishing to avoid certain sectors”.

The investment giant has launched the Vanguard ESG Developed World All Cap Equity Index fund (UK) with an ongoing charge of 0.20%, and the Vanguard ESG Emerging Markets All Cap Equity Index fund, charging 0.25%.

They’re available in income and accumulation share classes and are available via Vanguard as well as other major UK platforms.

The funds follow selected FTSE Global Choice benchmarks which screen out companies involved in non-renewable energy (nuclear power, fossil fuels), weapons (civilian, controversial and military), and “vice” products including alcohol, tobacco, gambling and adult entertainment.

Top holdings in the Developed fund include Microsoft, Apple, Amazon, Facebook and Alphabet. Top holdings in the Emerging fund include Alibaba, Tencent, Taiwan Semiconductor Manufacturing, China Construction Bank and Naspers, Vanguard confirmed.

Vanguard added that companies from any sector that fail to meet the United Nations Global Compact Principles on labour rights, human rights, the environment and anti-corruption are also excluded.

With the additions, the passive fund giant now offers investors four ESG funds.

Matthew Piro, head of portfolio review department, 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.”

‘Screen out the bad, but not actively supporting change’

Adrian Lowcock, head of personal investing at Willis Owen, said the Vanguard funds look to be competitively priced and are below the averages for passive funds in those sectors, “as one would expect from Vanguard”.

He said: “Given it takes a while of planning and preparation, these funds were launched because Vanguard has recognised the wider trend in the industry and growing demand for ESG funds.

“These funds use a more traditional negative filter, so they exclude anything that is “bad” either unethical or not environmentally-friendly. As such, the funds are not actively supporting those companies at the forefront of change or able to invest in companies which may have “negative” ESG roots but are actively engaging in change.”

Lowcock said this isn’t a bad thing, but added that investors need to decide if this is the route they want to go down when they consider investing ethically, do they want to be passive or would they prefer to actively engage.

He added: “Such an approach will appeal to some investors wishing to avoid certain sectors but not for those looking for positive change.”

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