Vanguard looks set to become the latest ETF provider to offer funds tailored to the sustainability-minded investor after filing a preliminary registration with the Securities & Exchange Commission for ETFs targeting US and international equities screened for strong environmental, social, and governance (ESG) characteristics.
The new funds provide exposure to US and international equities that have been screened for strong ESG characteristics.
The Vanguard ESG US Stock ETF and Vanguard ESG International Stock ETF will track market cap-weighted indices provided by FTSE Russell that comprise large-, mid-, and small-cap stocks within their respective universes.
The indices’ underlying methodology utilises an initial screen to exclude the usual suspects: those operating in the adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling, and nuclear power industries.
The construction methodology also strips out the stocks of companies that do not meet certain diversity criteria as well as labour, human rights, anti-corruption and environmental standards as defined by the UN global compact principles.
The US-focused ETF will track the FTSE US All Cap Choice Index, while the international ETF will track the FTSE Global All Cap ex US Choice Index, covering both developed and emerging markets.
“The adoption of ESG investing has accelerated in recent years, and more investors are looking for opportunities to align their investment choices with their values,” said Jon Cleborne, head of Vanguard’s portfolio review group. “Our new ETFs marry Vanguard’s characteristic low-cost, diversified investment approach with a rigorous ESG screening process.”
The ETFs are expected to begin trading on Cboe BZX Exchange in September 2018.
They are expected to have expense ratios of 0.12% for the US exposure fund and 0.15% for its international exposure fund, making them among the lowest-cost ESG offerings available to investors.
In contrast, the $1.0 billion iShares MSCI KLD 400 Social ETF (KSI US) charge an annual fee of 0.25%. KSI tracks the MSCI KLD 400 Social Index, a capitalization-weighted index of 400 US securities that provides exposure to companies with outstanding ESG ratings.