A Fossil-Free Option from Vanguard...At Last!

Vanguard are one of the world's largest fund managers with assets under management of $7 trillion, however they have been late to the ESG party. But better late than never I suppose, Vanguard UK have finally come around to offering funds which should be more acceptable to investors who prefer to avoid fossil fuel companies...something I have been pressing them to do for some time now.

The ESG Global All Cap (V3AM) is a passive index exchange traded fund (ETF) launched on the UK market in March 2021. The fund tracks the FTSE Global All Cap Choice Index which is basically the Global All Cap index which is then screened to exclude those companies which do not meet certain environmental, social or governance criteria (ESG). The index will therefore exclude:

1. Companies which do not meet standards on human rights, the environment and anti-corruption;

2. Non-renewable energy - basically companies involved in coal, oil and gas;

3. Vice products such as adult entertainment, alcohol, tobacco and gambling;

4. Weapons and landmines

Fund charges are 0.24% and platform charges to hold with Vanguard Investor are an additional 0.15%.

The fund has just under 5,000 holdings - large, medium and small from all around the globe. Unsurprisingly, US-listed companies account for 60% of the fund, Japan 7%, China 6% and the whole UK-listed shares less than Apple... just 3.2%.

Some top holdings include Apple (3.4%), Microsoft (3.1%), Amazon (2.4%), Google (2.3%), Facebook (1.3%), Tesla (0.9%) and JP Morgan Chase (0.8%).

Dividends will be paid quarterly.

I disposed of my Vanguard Lifestrategy funds in 2019 as I started to expand my green portfolio. In 2020 I added the iShares World SRI ETF as a partial replacement for the global equity element provided by the Lifestrategy funds. So I am pleased to see Vanguard introducing this climate-friendlier option for investors who are concerned about climate change and wish to avoid fossil fuel companies.

Having said that, ESG funds are a drop in the ocean compared to Vanguards massive traditional index funds. Current assets for this ETF fund are just $31m compared to $8bn for their All World ETF (VWRL). Vanguard therefore remain under fire from environmental organisations... they are the world's largest investor in the coal industry for example with holdings in over 200 coal operations worth a combined $86bn according to Reclaim Finance.

Last year CEO of Blackrock, Larry Fink said "Climate change has become a defining factor in companies' long-term prospects … But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance. In the near future — and sooner than most anticipate — there will be a significant reallocation of capital"

The large pension funds, local authorities and institutional investors are increasingly realising that they can no longer remain passive when it comes to addressing the existential threat of climate change. They demand the choice of avoiding fossil fuel companies and it looks like Vanguard have finally got the message.

I will consider adding this Vanguard fund to my list of future possibilities to sit alongside my iShares fund. Now we just need an ESG version of the Lifestrategy fund...I'm not holding my breath!

It will be interesting to see how these ESG funds attract investors money compared to the more traditional index funds. Would you consider exchanging your VWRL for V3AM?