Impact investing opportunities with Vanguard despite ESG concerns

This is a fund that wants to make money from environmental investments.

The inclusive, actively managed Vanguard Baillie Gifford Global Positive Impact Stock Fund (VBPIX) is an environmental, social and governance product that brings together companies with positive, inclusive and sustainable intentions.

“This is really a fund that will invest in global stocks, looking for long-term performance by investing in companies that are making a positive contribution to really advancing and solving some of the world’s most challenging problems, whether environmental or social or otherwise Matt Pirro, Vanguard’s global head of ESG product, told CNBC’s “ETF Edge” on Monday.

Although ETF stands for socially responsible investing, this particular topic raises questions. The Securities and Exchange Commission has expressed concern about the current unsettled state of ESG fund disclosure requirements across the industry. The agency proposed two changes to the sector’s rules.

“It’s important that investors have consistent and comparable disclosures about asset managers’ ESG strategies so they can understand what data underpins fund claims and choose the right investments for them,” SEC Chairman Gary Gensler said in a statement. from May.

Companies held in Vanguard’s Positive Impact Equity Fund include ASML, Taiwan Semiconductor, Moderna, John Deere and Tesla, which the S&P 500 removed from its ESG index in May. Tesla’s S&P DJI ESG score fell due to a “code of business conduct” and insufficient low-carbon strategy, as well as “allegations of racial discrimination and poor working conditions at Tesla’s Fremont factory,” according to the Indexology blog.

Piro says Vanguard’s design principles consider investment performance as well as client preferences. The investment management company is developing various ESG products to satisfy a range of consumer preferences, he said.

“We absolutely think this positive impact fund is well done from an active standpoint because we want to both achieve an outperformance goal and invest in those companies that have made a positive contribution,” Pirro said.

Vanguard’s exclusionary funds adhere to strict guidelines, barring companies that engage in “types of business activities that clients may not want their money invested in,” according to Pirro.

The Vanguard ESG US Stock ETF, for example, excludes companies involved in alcohol and tobacco, guns, adult entertainment and fossil fuels, among other activities and standards.

Do ESG funds have a future?

Many of today’s investors are “sustainability oriented,” John Hale, global head of sustainability research at Morningstar, said in the same interview. In turn, he believes the asset management industry is seeing increasing demand for impact investment opportunities.

“Sustainability happens when we make decisions that both meet our own needs but do not compromise the ability of others in future generations to meet their own needs,” he said. “It should come as no surprise that as more people are sustainability-minded today, they would want an approach to investing that has sustainability in mind.”

Hale believes “the SEC’s proposal is on the right track,” suggesting a need for increased transparency in the ESG fund space — proving the sustainability of related products and confirming that consumers aren’t getting a “green version[s].”

The SEC did not respond to a request for comment.

The Vanguard Baillie Gifford Global Positive Impact Stock Fund was launched in mid-July following a restructuring of the Baillie Gifford Positive Change Equities Fund, its predecessor. The Vanguard fund is up about 6% since its correction this summer.

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