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Vanguard Global ESG Select Stk Investor VEIGX Sustainability

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Sustainability Analysis

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Sustainability Summary

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Vanguard Global ESG Select Stock Fund has a number of positive attributes that a sustainability-focused investor may find appealing.

This fund has a Morningstar Sustainability Rating of 5 globes, indicating that the ESG risk of holdings in its portfolio is rather low relative to those of its peers in the Morningstar Global Equity Large Cap category. ESG risk measures the degree to which material environmental, social, and governance issues, such as 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.

Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of Vanguard Global ESG Select Stock Fund. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. Vanguard Global ESG Select Stock Fund has an asset-weighted Carbon Risk Score of 3.0, indicating that its companies have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, and and thermal coal. The fund fulfills this goal as its investment exposure to each of these activities is negligible. The fund has no exposure to high or severe controversies. Controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Examples of types of controversies include bribery and corruption scandals, workplace discrimination and environmental incidents. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. Such controversies can also damage the reputation of both companies themselves and their shareholders.

Currently, the fund has 8.1% involvement in fossil fuels, which is roughly in line with 9.5% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. The fund's 12.9% involvement in carbon solutions is roughly in line with the 11.8% average involvement of its peers in the Global Large-stock Blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.

ESG Commitment Level Asset Manager

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Wellington Management has made significant progress in sustainable investing in recent years such that it has a discernable and durable edge over peers. The firm has dialed up its focus on climate, expanded its central sustainable-investment team, and enhanced its disclosure efforts. The firm earns a Morningstar ESG Commitment Level rating upgrade to Advanced from Basic. Wellington’s sustainable-investing journey began in 2011 with the creation of a dedicated team for environmental, social, and governance research. Since then, it has accelerated its efforts by hiring specialists for specific goals and areas of focus. For example, Wellington formed an impact measurement team in 2021, which significantly improved the firm’s disclosure capabilities by means of detailed, strategy-specific ESG and carbon reports. The firm’s shared belief that sustainability goals go hand-in-hand with long-term financial returns is reflected in its continuous focus on climate investing. A founding signatory to the Net Zero Asset Managers initiative, Wellington formed a new partnership with MIT in 2022 to support the firm’s research around the transition to a low-carbon economy. This builds on a similar relationship the firm established to study physical climate risk with Woodwell Climate Research Center in 2018, which formed the basis for the firm’s coordinated response to the SEC’s proposed climate rule, advocating for transparent, thorough, and accurate climate risk disclosures. The firm’s integration of ESG risks extends beyond ESG-focused strategies. Wellington balances philosophical consistency and investment team independence by requiring that every portfolio manager defend their unique approaches to ESG integration before a central panel consisting of senior risk-, sustainability-, and product-focused members of the firm. Wellington boasts a well-staffed bench of sustainable-investment and stewardship experts, along with best-in-class ESG data and research. The firm benefits from the leadership of Wendy Cromwell, Wellington’s head of sustainable investing, who also sits on the board of the United Nations-supported Principles for Responsible Investment. Cromwell started her career at Wellington 25 years ago, and she has helmed Wellington’s venture into impact and sustainable investing over the past decade. Wellington’s sustainable-investment team has doubled since 2020 to a total of 40 members across sustainability strategy, ESG sector research, and climate research. In addition to those above, nearly 100 global industry and credit analysts support the central effort through company engagement and due diligence on proxy-ballot items. In 2022, Wellington incorporated ESG insights and thematic climate research from Woodwell and MIT into its central proprietary tool, which includes portfolio- and security-level ESG data for portfolio managers. Wellington’s internal database is a key strength for its proxy-voting and engagement needs, too. It centralizes company engagements and escalations, and it records feedback on each engagement, which enables Wellington to seamlessly cast and report on its votes at shareholder meetings. In addition to disclosing its full proxy-voting record in a timely fashion, Wellington also publishes its rationale for each key vote. Wellington’s public reports and policies offer more detail compared with peers, but there is room to improve: The firm’s engagement and escalation policy could still benefit from a clearer outline of priorities and expectations for outcomes at engaged companies.