This strategy has an above-average Morningstar Sustainability Rating of 4 globes, indicating that the ESG risk of holdings in its portfolio is relatively low compared with those of its peers in the UK Equity Mid/Small Cap category. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change, biodiversity, human capital, as well as bribery and corruption, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.
One key area of strength for Vanguard FTSE 250 ETF is its low Morningstar Portfolio Carbon Risk Score of 8.76 and very low fossil fuel exposure over the past 12 months, which earns it the Morningstar Low Carbon Designation. Thus, the companies held in the portfolio are in general alignment with the transition to a low-carbon economy. The fund has little exposure (1.90%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they can damage the reputation of both companies themselves and their shareholders.
Vanguard FTSE 250 ETF is not classified by its manager as either an Article 8 or Article 9 fund under the Sustainable Finance Disclosure Regulation. Article 8 and Article 9 funds promote environmental or sustainable characteristics or have a sustainable investment strategy, respectively, and hence would have a higher probability to drive positive ESG outcomes.