Vanguard has introduced its first ESG ETF in Europe with the launch of a global equity strategy based on a FTSE Russell index.
Fong Yee Chan, Head of ESG Strategy, UK and Europe, Vanguard.
The Vanguard ESG Global All Cap UCITS ETF is designed to serve as a core building block for ESG-aware portfolios, providing broad diversification while screening out undesirable issuers based on FTSE Russell’s ‘Choice’ framework.
The fund is referenced to the FTSE Global All Cap Choice Index which is derived from the FTSE Global All Cap Index universe of large, mid, and small-cap stocks across both developed and emerging markets.
The methodology removes companies that do not satisfy UN Global Compact principles relating to labour, human rights, environmental, and anti-corruption standards.
It also excludes firms deriving significant revenue from non-renewable energy (coal, oil, or gas), nuclear power, adult entertainment, alcohol, tobacco, gambling, and weapons (controversial, military, and conventional).
The resulting index consists of approximately 7,500 constituents, down from more than 8,900 in the parent index. Constituents are weighted by market capitalization, and the index is rebalanced on a quarterly basis.
The country allocations of the ESG and parent indices are broadly in line – the largest absolute difference is that stocks from the US are overweighted by about 2% compared to the parent index, while on a relative basis, UK exposure is trimmed by almost 25% from 4.1% to 3.1%. As one would expect, Japan (7.4%) and China (5.5%) are the next largest country exposures after the US on an absolute basis.
The allocation across sectors is also not too dissimilar bar some predictable deviations – technology stocks account for the largest weight at 25.0%, up 3.8% from the parent index, while exposure to oil & gas companies has been reduced down by 3.3% to a weight of just 0.3% and industrials have been trimmed by 2.3% to a weight of 9.6%. After technology stocks, the next-largest sector weights are health care (11.9%), industrials (9.6%), retail (8.8%), and banks (7.8%).
The fund has listed on London Stock Exchange in US dollars (Dist – V3AL LN; Acc – V3AA LN) and pound sterling (Dist – V3AM LN; Acc – V3AB LN) and on Deutsche Börse in euros (Dist – V3AL GY; Acc – V3AA GY).
It comes with an expense ratio of 0.24%.
Fong Yee Chan, Head of ESG strategy, UK and Europe, Vanguard, said: “Our clients have a range of environmental and social concerns. Many want to put their money to work in a way that enables them to mitigate certain ESG-related risks, aligns with their values, and meets their investment goals. That’s why we are committed to ensuring that our expansive and nuanced approach to ESG is reflected in our product offering and throughout our investment processes while balancing the potential for delivering long-term value to our investors.”