Vanguard Launches ESG U.S. Corporate Bond ETF

VALLEY FORGE, PA (September 24, 2020)—Vanguard today launched its first fixed income environmental, social, and governance (ESG) ETF for U.S. investors, Vanguard ESG U.S. Corporate Bond ETF (VCEB). The ESG ETF provides investors access to the U.S. corporate bond market and expands Vanguard’s current index-and-actively-managed ESG offerings. Vanguard ESG U.S. Corporate Bond ETF seeks to track the performance of Bloomberg Barclays MSCI U.S. Corporate SRI Select Index and is listed on the Chicago Board Options Exchange (Cboe) with a low expense ratio of 0.12%.1

“Investors are increasingly seeking opportunities to better align their investment objectives with their personal values,” said Kaitlyn Caughlin, head of Vanguard’s Portfolio Review Department. “Vanguard’s new ESG U.S. 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.”

Vanguard has offered ESG funds to U.S. investors for more than two decades, beginning with Vanguard FTSE Social Index Fund (VFTAX) in 2000. In recent years, Vanguard has broadened its equity ESG lineup with the addition of two ETFs, Vanguard ESG U.S. Stock ETF (ESGV) and Vanguard ESG International Stock ETF (VSGX), and an actively-managed offering, Vanguard Global ESG Select Stock Fund (VESGX). Vanguard ESG U.S. Corporate Bond ETF marks Vanguard’s initial entrance into the ESG fixed income market, an area that is growing in investor demand. U.S. investor assets in ESG fixed income mutual funds and ETFs doubled in 2019 to $850 million, and today, stands at $1.8 billion.2 The new ETF will further complement Vanguard’s ESG suite, offering asset class diversification through U.S. corporate bond market exposure.

Exclusionary-screened investment strategy         

Vanguard ESG U.S. Corporate Bond ETF will seek to track the performance of the Bloomberg Barclays MSCI U.S. Corporate SRI Select Index. The index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable corporate bonds with maturities of more than one year that are then screened by MSCI for certain ESG criteria. The exclusionary screening process includes removing bonds of companies that the index provider determines are involved in, and/or derive threshold amounts of revenue from, certain activities of business segments related to:

 

Agricultural/Environmental:

  • Gas
  • Genetically modified organisms
  • Oil
  • Thermal coal

Select Vices:

  • Adult entertainment
  • Alcohol
  • Gambling
  • Tobacco

Weaponry/Warfare:

  • Civilian firearms
  • Nuclear, controversial, and conventional weapons
  • Nuclear power

In addition to those screens, Bloomberg and MSCI will exclude the bonds of companies that don’t meet certain diversity criteria or bonds of any company that, as determined by the Index provider, do not meet certain standards defined by the Index provider’s ESG controversies assessment, which measures a company’s involvement in major ESG controversies by assessing a variety of factors such as  environmental impact, labor rights, human rights, community impact, governance, and compliance with the United Nations Global Compact Principles. These ESG screens are continuously assessed and applied to the investable U.S. corporate bond universe to determine the appropriate representation of eligible securities. Given Bloomberg and MSCI’s exclusionary screening process, the fund may perform differently than that of the broad market.

Managed by a leading fixed income advisor

Vanguard’s Fixed Income Group, one of the world’s largest fixed income investment managers, will serve as the advisor for the ETF.3 Vanguard’s fixed income indexing capabilities date back to 1986, with the launch of the first ever bond index fund, Vanguard Total Bond Market Index Fund (VBTLX). Since its inception in 1981, the Fixed Income Group has continually expanded its capabilities to manage active and indexed domestic and international bonds, municipal bonds, money market securities, and stable value assets. Today, the team is comprised of 180 global investment professionals who oversee nearly $1.9 trillion in global fixed income assets.

Josh Barrickman, principal, senior portfolio manager, and head of Vanguard Fixed Income Indexing Americas, will manage the ETF. Mr. Barrickman has been with Vanguard for 22 years and has more than 15 years of fixed income experience.

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About Vanguard

Vanguard is one of the world’s largest investment management companies. As of August 31, 2020, Vanguard managed $6.6 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers 422 funds to its more than 30 million investors worldwide. For more information, visit vanguard.com.

All data as of August 31, 2020 unless otherwise noted

1 The average expense ratio for ethically themed strategy fixed income funds is 0.72% according to Lipper, a Thomson Reuters Company. Data as of March 31, 2020.

2 Source, Morningstar

3 Source, Vanguard

For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Copies of the prospectus can be obtained from Vanguard

Vanguard ETF Shares are not redeemable with the issuing fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.  

All investing is subject to risk, including the possible loss of the money you invest. Investments in bonds are subject to interest rate, credit, and inflation risk. Diversification does not ensure a profit or protect against a loss. 

ESG funds are subject to ESG investment risk, which is the chance that the stocks or bonds screened by the index sponsor for ESG criteria generally will underperform the market as a whole or that the particular stocks or bonds selected will, in the aggregate, trail returns of other funds screened for ESG criteria.

BLOOMBERG® is a trademark of Bloomberg Finance LP. or its affiliates. BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, "Barclays"). MSCI® is a trademark and service mark of MSCI, Inc. (collectively with its affiliates, including MSCI ESG Research LLC ("MSCI ESG"), "MSCI"). These marks are used under license. Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited ("BISL") (collectively, "Bloomberg"), or Bloomberg's licensors own all proprietary rights in the the Bloomberg Barclays MSCI U.S. Corporate SRI Select Index SM ("Index") which Index is determined, composed and calculated by BISL, or any successor thereto, based on environmental, social and governance research provided by MSCI ESG.
Neither Bloomberg, Barclays nor MSCI is affiliated with Vanguard as Issuer of the Vanguard ESG U.S. Corporate Bond ETF, and neither Bloomberg, Barclays nor MSCI approves, endorses, reviews or recommends Vanguard ESG U.S. Corporate Bond ETF. Bloomberg, Barclays and MSCI do not guarantee the timeliness, accurateness or completeness of any data or information relating to the Index, and none shall be liable in any way to the Issuer, investors in Vanguard ESG U.S. Corporate Bond ETF or other third parties in respect of the use or accuracy of the Index or any data included therein. 

Vanguard Marketing Corporation, Distributor.