By focusing only on exclusions, Vanguard has missed the mark with its new environmental, social, and governance exchange-traded funds. Last month, the firm launched its first two ESG ETFs, the Vanguard ESG U.S. Stock ETF (ESGV) and the Vanguard ESG International Stock ETF (VSGX). The U.S. fund tracks the FTSE US All Cap Choice Index, and the international fund tracks the FTSE Global All Cap ex US Choice Index. Combining the two funds, theoretically, gives investors exposure to global equities through an ESG lens.
The problem is that these funds aren’t really ESG funds, at least not in the sense that I would define the term. Granted, the ESG space has some challenges with terminology reflecting varied approaches, but, for the most part, funds calling themselves “ESG” today explicitly integrate environmental, social, and corporate governance criteria to select companies with positive ESG characteristics.
Jon Hale, Ph.D., CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.