a different take on environmental, social, and
governance-based investing, or ESG, we spoke with
Vanguard investor Dan Wiener, who publishes a monthly
newsletter on all things Vanguard.
takes a dim view of ESG. That’s largely due to
under-performance over a long period of time, he said.
time, ESG and SRI (socially responsible investing)
strategies have not proven to be performance
winners," Wiener contends. "They may allow
their investors to sleep better at night from a
social-conscience point of view, but they aren’t going
to put more money in your pocket, they aren’t going to
give you more money to direct towards the social,
environmental, or governmental issues that matter most
to you, and they haven’t had much of an impact, if
any, on corporate-governance practices."
one investor’s definition of what makes an investment
ESG-worthy might make another recoil, he adds.
take Vanguard’s own Vanguard Social Index (symbol:
VFTSX), which has been around since May 2000, longer
than many exchange-traded funds and mutual funds in this
category. Since 2000, the fund has lost ground to the
tune of 1.0 percent per year when matched against the
S&P 500 Index. Vanguard Social Index did claw back
some losses since the latter months of the 2008 bear
market, due to heavier stakes in technology and
may not be a popular stance, "but when it comes to
an exclusionary index approach that removes ‘bad’
companies, like Social Index’s benchmark FTSE index, I
am skeptical that you are doing good. I also don’t
like your chances of outperforming the broad
market," Wiener said.
He believes negative screens — avoiding certain stocks
— don’t motivate public companies to change.
you sell a stock — say, ExxonMobil — because you don’t
want to own fossil-fuel-related companies, someone else
is on the other side of that trade buying ExxonMobil.
Exxon’s board or CEO doesn’t give a hoot that you
sold your shares, because some other investors took your
place. Plus, when a company like Wells Fargo is among
the 10 largest holdings in Social Index, you could argue
that the fund fails on the very first social pillar of
‘do no harm,’ " he said.