Vanguard unveils ESG ETFs that exclude controversial assets

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Vanguard Group Inc. is expanding its offering of passive ESG funds in Europe, betting its approach of excluding controversial industries will appeal to investors confused by other, more complex products touting environmental, social and governance measures.

The $7.5 trillion investment giant will offer two index-linked exchange-traded funds that track large companies and small and medium-sized companies in Europe and the United States. The additions bring to 11 the number of index funds offered in the EU and UK that screen out things like arms manufacturers, oil and gas producers, and companies that violate human rights. ‘man.

“We want to give investors more options to build ESG portfolios,” Fong Yee Chan, the firm’s head of ESG strategy for Europe, said in an interview. “This is part of our long-term strategy to enable our clients to reflect their ESG preferences in their portfolios, in addition to individual products.”

Vanguard adds ESG ETFs as the financial industry adjusts to new EU rules introduced this month requiring companies to ensure they know retail investors’ sustainability preferences and offer products appropriate ESGs. These demands are part of the EU’s efforts to revamp its economy, as floods, fires and extreme droughts provide stark evidence of the disastrous effects of climate change.

The new requirement – part of the EU’s revised Markets in Financial Instruments Directive – could further boost ESG investing, according to industry researcher Morningstar. Indeed, asset managers are devoting more resources to targeting retail investors who are often confused by the wide range of products available under the ESG label.

“There’s been a lot of noise and a lot of new ESG products hitting the market,” Chan said. “For retail investors, this can be confusing.”

Vanguard is planning additional ESG funds and plans to launch a climate-related product, said Chan, who works with investment teams to integrate ESG considerations into their decision-making.

The exclusion strategy makes the ESG objectives of a product clear, she said. This helps ensure that the products don’t run afoul of regulators who are cracking down on fund managers who promise more than their ESG products can deliver. The new ETFs are both classified as so-called Article 8 funds under the EU Sustainable Finance Disclosure Regulation, meaning they “promote” ESG characteristics.

These additions are the latest in Vanguard’s ESG product offering as the company responds to investor demand. It began selling four actively managed ESG products in Europe in December, and this week increased the number of US-domiciled funds to seven.

© 2022 Bloomberg

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