Vanguard’s Social Index Fund VFTAX is one of the largest ESG funds on the market, and is Vanguard’s first ever ETF. It is recognised for having had a highly positive impact on the corporation, as following its success, vanguard created numerous other ETFs, thereby influencing other companies in the sector to make climate efforts themselves. In fact, the Vanguard Social Index Fund is very well ranked in many financial blogs.
However, some of its main holdings make this reputation highly questionable, as their actions are nowhere near as sustainable as the corporation leads us to believe
For this reason, I am ranking Vanguard Social Index Fund at 1 planet, although other reviews have ranked it highly, its lack of active advocacy for climate change and sustainable practices is undeniable.
The Vanguard Social Index Fund VFTAX has, ironically, been able to reach its size and place in the market as a sustainable fund thanks to multiple holdings and investments, which are everything but sustainable. Indeed, after analysing its top holdings, I was alarmed when I noticed that very few of these are sustainability and climate-focused companies.
VFTAX’s top ten holdings in order are: Apple, Microsoft Corp, Amazon.com Inc, Alphabet Inc. Class A, Alphabet Inc. Class C, Tesla Inc, UnitedHealth Group Inc, Facebook Inc. Class A, NVIDIA Corp and Procter & Gamble Co.
When observing this list I found that not only are many of these corporations not focused on sustainable industries such as renewable energy, but they even have particularly low ESG scores. Indeed, corporations such as Amazon and Facebook have faced numerous digital scandals in the past few years, for lack of respect for client privacy and transparency. Further, Amazon and Apple in particular have been subject to various criticisms due to the terrible labour conditions workers face, as well as the total absence of eco-consciousness both companies express, as they make little to no efforts to improve their production and distribution ways. Many of the fund’s main holdings do not respect any of the top ESG principles, revealing its unsustainability.
Furthermore, another questionable point is that many of its holdings are the same as Vanguard’s other ETFs, revealing that they are not going out of their way to better the environment, but merely creating multiple ETFs to ‘look good’ and appear as a sustainable corporation
VFTAX screens ESG criteria and excludes companies involved in controversial industries such as tobacco, fossil fuels and adult-entertainment, as well as companies with known poor labour conditions and low wages, in order to maintain its social and climate-positive reputation. However, this criteria is not properly upheld by the fund, nor is it sufficient to qualify VFTAX as sustainable.
Firstly, although Vanguard Inc claims that this selection criteria is highly strict and effective, leaving a chance only to the best scoring ESG companies, the fact that the fund’s main holdings include the names of Amazon, Apple, Facebook or even Microsoft clearly goes against this statement, revealing the lack of transparency on Vanguard’s behalf regarding its projects and strategies.
Not only are their strategies not upheld, but they lack inclusions of high scoring ESG companies. Indeed, VFTAX only claims to avoid poorly scoring companies, but does not indicate any incentive to invest in ‘better’ companies, who are making active efforts for the climate. Because of this issue, one can notice that the VFTAX Portfolio lacks key environmental and ESG industries such as renewable energy and sustainable alternatives to day to day consumption patterns.
This is highly disappointing as the fund is so highly regarded, yet is only making minimal efforts, pushing me to believe that it has more of a greenwashing mentality, rather than a true desire to spread honest ESG values to other funds in the market.
When researching who is behind the fund, I had a very difficult time figuring out who the managers actually are. This lack of accessibility to this key information reveals the lack of transparency expressed by Vanguard Social Index Fund, thereby bumping its ranking down. Indeed, if one cannot know who those behind a fund are, one cannot properly evaluate the sustainability of this fund.
Because of this gap, I did research on Vanguard as a whole, and what I found only confirms my previous statements. Although the company has pledged to reduce its emissions and eventually achieve net zero emissions across its investments by 2050, current reports show that Vanguard is not on the right track to reaching these goals. Indeed, despite precedent claims, Vanguard holds roughly US$300 billion in fossil fuel complying companies, and multiple of its assets are still in highly polluting industries such as tobacco.
In all, I am very disappointed after reviewing Vanguard’s Social Index Fund, which ranks so highly yet does so little for the environment. Due to its questionable holdings, insufficiently strict investment criteria and lack of transparency, I rate this fund 0.5 planets out of 3, in hope that it will eventually change and stick to its previously set targets.