Vanguard PrimeCap Core Fund may not appeal to sustainability-conscious investors.
This fund has above-average exposure to ESG risk relative to its peers in the US Equity Large Cap Blend category, earning it the second-lowest Morningstar Sustainability Rating of 2 globes. Investors concerned about ESG risk may be better off with funds earning 4 or 5 globes, as they tend to hold securities less exposed to ESG risk. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, such as climate change and inequalities, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
One potential issue for a sustainability-focused investor is that Vanguard PrimeCap Core Fund doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. The fund has relatively high exposure (9.75%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that may negatively affect stakeholders, the environment, or the company’s operations.
One key area of strength for Vanguard PrimeCap Core Fund is its low Morningstar Portfolio Carbon Risk Score of 6.96 and low fossil fuel exposure of 3.18% over the past 12 months, which earns it the Morningstar Low Carbon Designation. The fund is therefore well positioned to transition to a low-carbon economy.