Vanguard has launched its first Environmental, Social, and Governance-screened fixed income ETF – the Vanguard ESG US Corporate Bond ETF (VCEB US).
Kaitlyn Caughlin, Head of Vanguard’s Portfolio Review Department.
The fund has listed on Cboe BZX Exchange and is linked to the Bloomberg Barclays MSCI US Corporate SRI Select Index.
The index universe, which is based on the constituents of the regular Bloomberg Barclays US Corporate Index, includes US dollar-denominated, investment-grade, fixed-rate corporate bonds with maturities of more than one year and amounts outstanding above $750 million.
The universe is then screened by MSCI for certain ESG criteria.
Bonds of companies that derive more than a threshold amount of revenue from natural gas, genetically modified organisms, oil, thermal coal, adult entertainment, alcohol, gambling, tobacco, civilian firearms, nuclear weapons, controversial weapons, or nuclear power are excluded.
Additionally, the index ditches bonds of companies that are embroiled in severe ESG controversies, are in violation of United Nations Global Compact Principles, or fail to have at least one woman on the board.
Kaitlyn Caughlin, Head of Vanguard’s Portfolio Review Department, commented, “Investors are increasingly seeking opportunities to better align their investment objectives with their personal values. Vanguard’s new ESG US Corporate Bond ETF better enables them to do exactly that.
“The ETF will provide our clients an efficient means of accessing the credit markets while employing a meticulous exclusionary screening process developed by MSCI and implemented by Bloomberg.”
The fund comes with an expense ratio of 0.12%, making it the cheapest all-maturity ESG corporate bond ETF currently available.
Issuers have been rushing out suites of ESG ETFs in recent months, hoping to secure a degree of early-mover advantage and profit from a trend that is tipped to be a significant long-term driver of asset flows.
Thus far, Vanguard appears to have been more reserved with this fund becoming only its third ESG ETF following the launch of the Vanguard ESG US Stock ETF (ESGV US) and Vanguard ESG International Stock ETF (VSGX US) in September 2018 – ETFs which now house in excess of $3 billion collectively.
Vanguard’s move into sustainable fixed income may prove timely, as fewer rivals currently offer products in this segment, and investor demand is growing rapidly, albeit from a small base.
According to data from Morningstar, US investor assets in ESG fixed income mutual funds and ETFs doubled in 2019 to $850m and currently stand at $1.8bn, as of September 2020.