Vanguard Total Stock Market Index Fund is likely to concern sustainability-focused investors given certain substandard ESG attributes.
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 Total Stock Market Index Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate are more likely to align with the expectations of an investor who cares about sustainability issues. The fund's current involvement in fossil fuels reaches 8.67%, surpassing 7.77% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.
The fund has an asset-weighted Carbon Risk Score of 7.98, indicating that its current equity and/or bond holdings have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets.
The fund exhibits moderate exposure (8.54%) 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.