Is VEIGX The Most Sustainable ESG Fund From Vanguard? (VEIGX Review)

Published by Fernando on

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VEIGX or Vanguard Global ESG Select Stock Fund is the only ESG fund from Vanguard that has an integrated ESG strategy. This means that VEIGX applies strong ESG criteria when selecting its holdings and, as consequence, has a better overall sustainable performance than other Vanguard funds and ETFs.

Intro

VEIGX or Vanguard Global ESG Select Stock Fund is an ESG integrated fund from Vanguard. The mutual fund is advised by Wellington Management Company LLP, requires a minimum investment of USD 3,000, and has a TER (total expense ratio) of 0.55% per year.

Wealthier investors can opt for the Admiral Shares version of the fund (VESGX), which has a slightly lower TER (total expense ratio) of 0.45% and requires a minimum investment of USD 50,000.

The expense ratios can be considered low for mutual funds. However, when compared with ETFs, the expenses are much higher than the average, especially when compared to more traditional Vanguard ETFs.

Let us review VEIGX fund to understand its investment strategy, the sustainability performance of the fund, the ESG performance of the fund holdings and potential areas of concern.

VEIGX, Vanguard Global ESG Select Stock Fund

What is VEIGX’s investment strategy?

Vanguard Global ESG Select Stock Fund (VEIGX) is actively managed and has an ESG integrated strategy, meaning that the fund advisor is more selective and critical when selecting its holdings. However, different than an ETF, mutual funds are not required to disclose their holdings daily, nor to track a specific index. The fund advisor has a lot of flexibility to adjust the portfolio of stock as desired.

According to Vanguard’s prospect, the fund strategy does not require it to exclude any company, industry, or country due to controversial business activities or low ESG ratings. For example, the fund might hold financially well-performing energy companies that are transitioning from fossil fuels to renewables, and that currently have high carbon intensity.

At least 80% of VEIGX assets should be invested in stocks of companies that meet the fund’s advisor ESG criteria. However, Wellington’s ESG criteria are highly independent and do not rely on third-party ESG approaches or methodologies.

Wellington’s portfolio is based on the induvial merits of each company and uses its own quantitative and qualitative assessment. When evaluating the ESG performance of companies, the fund advisor focuses on:

1. proven track record of effective capital allocation

2. leading ESG practices as determined through an evaluation of how the company integrates material ESG risks and opportunities into its corporate strategy

3. confidence that a wide gap between return on capital and cost of capital can be sustained

Wellington Management Company LLP, VEIGX Prospectus

Moreover, Wellington identifies ESG risks and opportunities based on:

  • a company’s response to the effects of climate change, the demand for cleaner fuel sources, and its commitment to net zero emissions by 2050 (Environmental)
  • a company’s labor practices and employee engagement (Social)
  • an engaged and diverse board (Governance)

Despite having a clear strategy and investment mandate, investors can’t know which companies Wellington will be adding or removing to the VEIGX portfolio. When investing in mutual funds investors must fully trust the decisions of the fund advisor. In this case, the fund managers from Wellington responsible for VEIGX are Mark D. Mandel and Yolanda C. Courtines.

The ESG performance of VEIGX

Let us see how Vanguard Global ESG Select Stock Fund (VEIGX) performs on ESG according to different ESG rating agenices.

MSCI ESG Ratings for VEIGX

According to MSCI ESG Ratings, VEIGX has a great sustainability performance. It has a high ESG rating of ‘AAA’, low carbon intensity (<100 tCO2/mUSD) and, is not exposed to any controversy. Moreover, it has an excellent peer rank of 99th and a global rank of 98th, placing it among the top ESG funds.

Below we present MSCI ESG data for VEIGX and compare it with the ESG laggard, Vanguard Social Index Fund (VFTAX), and a strong competitor from iShares, DMXF.

MSCI ESG dataVEIGXVFTAXDMXF
MSCI ESG RatingAAABBBAA
Peer rank99th41st90th
Global Rank98th39th94th
Carbon Intensity95.165.171.4
% of ESG laggards0%6%0%
Brown revenue1.4%0.2%0.0%
Green revenue6.2%5,7%4.9%
Board diversity34.2%32.4%28.8%
Controversies000

Fossil Free Funds ratings for VEIGX

At Fossil Free Funds, VEIGX is recognized with the Sustainability Mandate from Morningstar, indicating that the fund considers social and environmental issues when selecting companies.

Overall, VEIGX has great Fossil Free Funds scores – either grades A or B – and considerably better grades than its competitors VFTAX and DMXF in deforestation and prison industrial complex areas.

Fossil Free FundsVEIGXVFTAXDMXF
Sustainability Mandateyesyesyes
Fossil fuelsB - veigxB - veigxB - veigx
DeforestationB - veigxC - veigxC - veigx
Gender equilityA - veigxA - veigxC - veigx
Civilian firearmsA - veigxA - veigxA - veigx
Prison industrial complexB - veigxC - veigxF - veigx
Military weaponsA - veigxA - veigxB - veigx
TobaccoA - veigxB - veigxB - veigx

Morningstar sustainability ratings for VEIGX

For Morningstar, VEIGX is number one on their ‘Sustainability Score Percent Rank’, receives 5 starts (or globes) on ‘Sustainability Rating’, and has great (=low risk) ‘Sustainability Score’1 and ESG risk scores.

Note 1: Morningstar Sustainability Score is derived from Sustainalytics company-level ESG risk analysis. For Sustainalytics a low ESG risk rating indicates that the company is not subject to critical environmental, social or governance risks. Therefore, the lower, the better.

Morningstar Sustainability and ESG Ratings for VEIGX
Morningstar Sustainability and ESG Ratings for VEIGX

Companies in VEIGX to monitor

Despite its great ESG performance, there are a few companies in VEIGX that should be monitored, since they engage in controversial practices:

National Grid PLC (fossil fuel): National Grid is the only company that generates brown revenue in VEIGX. The fund has USD 4.5 million or 1.4% of shares allocated to this stock.

The Home Depot Inc (deforestation): Home Depot’s supplier Home Legend has been linked to illegal logging, land-grabbing, and clear-cutting tropical rainforests in Papua New Guinea, which directly impacts VEIGX’s deforestation grade. VEIGX has USD 6.4 million or 2% of shares allocated to this stock.

Microsoft (prison industrial complex): Microsoft is one of the main providers of IT services used by the US government as surveillance of immigrant communities. VEIGX has USD 14.4 million or 4.7% of shares allocated to this stock.

The ESG performance of VEIGX holdings

As an actively managed fund, VEIGX’s holdings can vary from time to time. At the time of writing VEIGX had USD 504 million of assets under management and a well-diversified portfolio with 38 stocks. 51.9% of the assets were allocated to North American stocks and 33.2% were allocated to European stocks.

At the table below we have all of 38 VEIGX holdings, their respective weight, and ESG risk ratings from Sustainalytics.

VEIGX holdings% shareSustainalytics
(ESG risk ratings)
MICROSOFT CORPORATION4.21%14.6
STARBUCKS CORPORATION3.24%21.1
AUTOMATIC DATA PROCESSING, INC.2.98%12.6
DBS GROUP HOLDINGS LTD2.94%20.0
Compagnie Generale des Etablissements Michelin SCA2.90%15.1
VISA INC.2.75%17.4
MERCK & CO., INC.2.72%23.0
DEERE & COMPANY2.70%16.7
DIAGEO PLC2.66%15.4
ING Groep NV2.59%17.2
THE HOME DEPOT, INC.2.54%11.6
NORTHERN TRUST CORPORATION2.52%25.1
Industria de Diseno Textil SA2.51%10.0
BCE Inc2.42%19.0
TEXAS INSTRUMENTS INCORPORATED2.41%19.9
COLGATE-PALMOLIVE COMPANY2.34%21.7
Taiwan Semiconductor Manufacturing Co., Ltd.2.33%14.4
COMPASS GROUP PLC2.30%17.9
Iberdrola SA2.24%19.4
THE PROGRESSIVE CORPORATION2.24%22.8
THE BANK OF NOVA SCOTIA2.24%20.4
AIA Group Limited2.23%12.9
Novartis Inc.2.17%17.0
Mitsubishi UFJ Financial Group, Inc.2.14%20.5
Recruit Holdings Co.,Ltd.2.13%12.8
NATIONAL GRID PLC2.08%22.3
Wolters Kluwer NV2.02%9.6
Schneider Electric SE1.92%17.4
ACCENTURE PUBLIC LIMITED COMPANY1.83%11.3
Koninklijke DSM NV1.74%15.8
Atlas Copco AB1.58%18.7
PROLOGIS, INC.1.56%9.7
DANAHER CORPORATION1.54%17.7
ECOLAB INC.1.37%25.8
BAXTER INTERNATIONAL INC.1.28%27.6
Trane Technologies plc1.21%14.6
Vestas Wind Systems A/S1.03%14.8
B3 SA Brasil Bolsa Balcao0.85%15.2

More than 70% of VEIGX holdings have low ESG risk ratings (less than 20 points). There are two companies with medium-high ESG risk ratings: Ecolab (25.8 points) and Baxter (27.6 points) International.

Baxter International, an American health care company, has ESG issues related to accounting and tax fraud.

On the other hand, Ecolab, a company that offers water, hygiene, and infection prevention solutions and services, is seen as a responsible company. For the eighth consecutive year, Ecolab ranks within the top 10 on Corporate Responsibility (CR) Magazine’s 100 Best Corporate Citizens.

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Is VEIGX a good investment?

Vanguard Global ESG Select Stock Fund (VEIGX), an actively managed fund from Vanguard, is a great investment option for sustainability investors looking for a global fund with an integrated ESG strategy. VEIGX is a top performer on ESG criteria according to MSCI and Morningstar, and most of the fund’s holdings have low ESG risk exposure according to Sustainalytics.

Being VEIGX a mutual fund, investors should be aware of the fund’s higher fees and must rely on the ESG criteria and investment decisions made by Wellington Management Company, the fund advisor.

After revising all Vanguard ESG funds, we conclude that VEIGX is the only Vanguard with a significant ESG focus and the only one worth the investment of sustainable investors.


Not an investment advice: The information provided on this website is intended for general information purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. You should conduct your due diligence and, if necessary, consult a qualified independent financial advisor before making any investment decisions.

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Categories: ESG

Fernando

Fernando created Your Green Wealth to help investors find sustainable investing options. When not writing for Your Green Wealth, he is a business developer for renewable energy projects.

2 Comments

stewart · June 2021 at 15:46

Thank you for the informative ESG investing information. Kindly consider that some of your readers may need some background to the information you provide. For example I had to look up ‘TER’ since it wasn’t defined before you used it. On the various ratings – knowing if a higher # is better than a lower number is not always intuitive e.g. ESG Risk Rating. I don’t have a context for the Morningstar ESG Breakdown e.g. what does 2.75 for E mean, is that good /bad, is higher or lower better?

I appreciate these reports but certain basics would help me and perhaps your other readers.

Thank you for your consideration of the above.

    Fernando · June 2021 at 16:43

    Hi Stewart,
    Thank you for the feedback and I’m glad to hear that the VEIGX review was useful for you.
    I have made small changes in the article so that the definitions and concepts are clear for all readers.

    All the best,
    Fernando

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