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Sustainability Matters

Vanguard Gets It Mostly Right With Actively Managed ESG Fund

The new offering, which launches later this year, has a well-conceived approach, a quality subadvisor, and, of course, low fees.

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I thought Vanguard missed the mark with the two environmental, social, and governance exchange-traded funds it launched last September. That's because Vanguard ESG U.S. Stock ETF (ESGV) and Vanguard ESG International Stock ETF (VSGX) focus on exclusionary screening rather than on positive ESG integration.

The typical passive ESG fund tracks an index that is constructed using company-level ESG analytics to tilt its portfolio toward companies that are doing a better job addressing the material ESG risks and opportunities facing their businesses. The Vanguard ETFs, however, don't reflect an ESG integration approach. They are throwbacks, evoking the pre-ESG era when "socially responsible" portfolios employed a more limited negative-screening approach that excluded companies based on their products or practices.

Jon Hale does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.