ESG (environmental, social, and governance) investing allows you to invest in a way that can meet your financial goals as well as your personal preferences and beliefs about the future.
However, there is no one-size-fits-all approach and ESG funds may not be suitable for everyone. The approach to ESG fund investing that you choose will be unique to you and will depend on several factors.
As with all investment decisions, these factors could include how far away your investment goal is, your attitude to risk, as well as your ESG preferences.
Different approaches to ESG investing
There are many ways to approach ESG investing for those who wish to do so. However, understanding the ESG product landscape can be challenging, so we've outlined two main categories of ESG products offered by Vanguard and how they might benefit you.
For those who wish to invest in a fund that pursues certain ESG criteria, we offer a choice of both index and active ESG funds.
Typically, index funds seek to closely match (or ‘track’) the overall performance of a specified index (also known as a ‘benchmark’1). With active funds, the fund manager seeks to outperform a benchmark with investments hand-picked by professional fund managers, in line with the fund’s investment objectives.
ESG index funds
Vanguard offers ESG index mutual funds and exchange-traded funds (ETFs)2 for investors who want to avoid or reduce their exposure to certain ESG-related risks.
Our ESG index mutual funds and ETFs track an index that screens out (or excludes) companies engaged or involved in certain business activities or controversial conduct, and/or earn their revenue (above a certain percentage) from that activity3.
These can include companies involved in the manufacture or supply of fossil fuels, tobacco and controversial weapons, for example.
ESG active funds
We also offer low-cost actively managed ESG funds. These funds aim to outperform a benchmark while making investments based on certain ESG considerations.
The way our active funds incorporate ESG criteria may vary according to the fund and you can find more information on our ESG page or in the prospectus for the individual funds.
Which style of ESG investing is right for you?
As already mentioned, you can approach ESG investing in different ways and the approach that you choose should align with your investment and ESG preferences.
If you want to mostly match the performance of an index but avoid certain industries, then ESG index funds that exclude or reduce exposure to certain business activities could be a good option.
If, on the other hand, you want to try to outperform the market by investing in a fund with an explicit ESG strategy, then investing in active ESG funds might be more appropriate.
Ultimately, we believe that long-term investing success is built on four simple principles, which apply equally to our ESG funds and non-ESG funds: have clear and appropriate investment goals; invest in a balanced portfolio; minimise costs; and maintain perspective and long-term discipline.
By focusing on these principles, you can put your investments in the best position to help achieve your financial goals and reflect your personal preferences.
1 A benchmark is often a market index, or combination of indices, that investors use to measure investment performance. An index typically measures the performance of a basket of investments, such as a basket of shares or bonds, that are intended to represent a certain area of the market. Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.
2 ETFs are a type of index fund that typically track a particular market index. Unlike index funds, however, they are traded on the stock market and investors can buy and sell them at any time during the day. Other funds are traded only once a day.
3 The indices that our ESG index funds track are provided by FTSE Russell or Bloomberg. The funds may hold investments outside of the index which may not be subject to screening. For more details of the indices, please see the fund prospectus.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Important information
Vanguard only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described, please contact your financial adviser.
This is designed for use by, and is directed only at persons resident in the UK.
The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to
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