Industry trade

Impact investing opportunities with Vanguard despite ESG concerns

It is a fund that seeks to make money through green investing.

The inclusive and 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 truly a fund that will invest in global equities that seek to generate long-term outperformance by investing in companies that are making a positive contribution to advancing and solving some of the world’s toughest problems, whether they’re environmental or social or otherwise,” Matt Piro, Vanguard’s global head of ESG products, told CNBC’s “ETF Edge” on Monday.

While ETF stands for socially responsible investing, this particular topic raises questions. The Securities and Exchange Commission has expressed concerns about the current unestablished state of ESG fund disclosure requirements across the industry. The agency has proposed two rule changes for the sector.

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

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 dropped due to “codes of business conduct” and a flawed 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 argues that Vanguard’s design principles consider investment outcomes, as well as customer preferences. The investment management firm develops 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 as we want to achieve both an outperformance target while investing in the companies that have contributed positively,” Piro said.

Vanguard’s exclusion funds adhere to strict guidelines, excluding companies that engage in “the types of business activities that customers may not want their money invested in,” according to Piro.

The Vanguard ESG US Stock ETF, for example, excludes companies engaged in alcohol and tobacco, weapons, adult entertainment, and fossil fuels, among other businesses and standards.

Do ESG funds have a future?

Many investors today are “sustainability conscious,” said Jon Hale, global head of sustainability research at Morningstar, in the same interview. In turn, he believes the asset management industry is receiving greater demand for impact investing opportunities.

“Sustainability happens when we make decisions that both meet our own needs but don’t compromise the ability of other future generations to meet theirs,” he said. “It should come as no surprise that, with more and more sustainability-conscious people today, they want an approach to investing that takes sustainability into account.”

Hale thinks “the SEC proposal is on the right track”, suggesting a need for increased transparency in the ESG funds space – proving the sustainability of related products and confirming that consumers are not getting a “greenwashed 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 after a restructuring of the Baillie Gifford Positive Change Equities Fund, its predecessor. The Vanguard fund is up about 6% since its adjustment this summer.