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Report details Vanguard's dirty dollars

Megan Hernbroth
Mar 24, 2022
Illustration of a watering can pouring a stream of oil on to a flower.
Illustration: Gabriella Turrisi/Axios

Two of Vanguard's five ESG-focused funds are quietly funneling investors' money into fossil fuels, chemicals and plastics manufacturers, according to a new ACRE report provided exclusively to Axios.

Why it matters: Corporate transparency in the name of investor protection was a key motivating factor behind the new SEC rules approved Monday, but outside organizations are still largely responsible for holding corporations accountable.

Driving the news: A report from the left-leaning Action Center on Race and the Economy — ACRE — found that roughly one-third of investments from Vanguard's two largest equity-based ESG funds — ESG U.S. Stock ETF (ESGV) and FTSE Social Index Fund Admiral Shares (VFTAX) — ultimately went to industries ACRE has dubbed "high-risk" for contributing to environmental and racial injustices.

What they found: ACRE found that investments in high-risk companies totaled roughly $6 billion across the two funds.

  • Using Vanguard's customizable investment reports, ACRE found that $1.4 billion was invested in companies that contribute to pollution, including Dow Chemicals, Newmont (NYSE: NEM), PPL (NYSE: PPL) and Covanta.
  • Another $1.3 billion went to what ACRE dubbed "dirty dollar" corporations, meaning financial institutions that have funded fossil fuel companies or other high-risk industries.

Zoom in: The lack of standardization among companies with ESG pledges is contributing to dubious practices by some of the largest financial organizations in the world, ACRE report author Brittany Alston tells Megan.

  • Though the SEC disclosure rules announced Monday are a step in the right direction, Alston says there is still a need for accountability from companies creating irreversible damage to the environment and underserved communities that are shouldering the brunt of the impact of climate change.
  • "You can't have socially responsible funds riddled with extractive investments. That just doesn't jibe," Alston says.
  • Among the actions ACRE is recommending is a shift to more robust screening software for financial institutions managing ESG-focused funds to better filter out high-risk companies.

A Vanguard representative declined Axios' request for comment.

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