Vanguard SustainableLife: Helping advisers rise to the sustainability challenge

It can be a challenge to build sustainability into a client’s portfolio whilst also maintaining balance and achieving low cost. Join us to find out why Vanguard works with Wellington, a leader in sustainable investing, to deliver the Vanguard SustainableLife fund range.

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By Sarah Gibb-Cohen, senior investment product specialist, Vanguard Europe

At Vanguard, we think about environmental, social and governance (ESG) risks and opportunities in the context of delivering long-term value to our investors and helping them to meet their investment goals as well as values.

That’s why we’ve expanded our ESG product line-up with the launch of a suite of actively-managed funds for investors who want to explicitly incorporate sustainability criteria.

We’ve created the SustainableLife funds, which are a range of active multi-asset funds with different equity/bond allocations, and the Vanguard Global Sustainable Equity Fund, which invests solely in global equities.

Both strategies will be managed by our long-standing partner in active investing, Wellington Management Company, which has co-managed the Vanguard Global Equity Fund and Vanguard Global Equity Income Fund since their UK launches in 2016, as well as the predecessor to the SustainableLife fund range – the Vanguard Global Balanced Fund.

Looking for an active edge

The decision to appoint Wellington to oversee our sustainable mandates was taken carefully. As buyers of active management for the past 40 years, our Fund Oversight and Manager Search team is central to selecting and monitoring our active investment managers – for both internal and external teams.

First and foremost, the team seeks managers with an ‘active edge’ that meet our criteria across four pillars of assessment, which are firm, people, process and philosophy:

  • Firm: organisational structures that are aligned with Vanguard’s approach to delivering value to investors, as well as a manager’s ability to attract, retain and motivate talented investors.
  • People: outstanding talent and passion, intellectual diversity, experience and cohesion. At the same time, we avoid ‘star manager’ cultures and place great importance on diligent succession planning.
  • Process: disciplined investment processes steered by proprietary research.
  • Philosophy: managers with a distinctive and enduring investment philosophy.

Our partnership with Wellington dates back to the launch of the Vanguard Wellington Fund, the world’s longest-running multi-asset fund, in 1975 (originally established in 1928). We’ve long admired the firm’s collaborative and entrepreneurial culture, as well as its private partnership structure, which complements its long-term investment approach and helps the company to attract and retain high quality investment talent.

So, we have confidence in Wellington’s ability to generate alpha for our investors, but what gives us faith in the firm’s ability to manage our sustainability-focused funds?

A strong track record in sustainability

For over a decade, Wellington has been a leader in integrating ESG considerations into its investment process. The firm’s experience in sustainable investing dates back to 2006, when it began managing a US international equity impact fund.

Since then, Wellington has launched several sustainability-focused funds and is a keen supporter of industry projects. Notably, the firm is a founding member of the Net Zero Asset Managers initiative – a group of asset managers committed to supporting the goal of net-zero greenhouse gas emissions by 2050 or sooner – to which Vanguard is also a signatory.

Wellington’s network of global investment analysts works closely with its ESG and climate research teams to develop sector-specific ESG risk analysis, while partnerships with independent leaders in sustainability research give Wellington’s portfolio managers an analytical edge.

A partnership with the Woodwell Climate Research Center, for example, has generated a new investing methodology that layers climate-science data on top of stock fundamentals and macroeconomic indicators in a three-dimensional map. The climate research team takes the data captured with Woodwell and combines it with company disclosures and analysis to project climate-risk exposures for a wide range of assets, which informs investment decisions and engagements with companies. 

Emphasis on engagement

Like Vanguard, Wellington strongly believes that engaging with company management teams – alongside proxy voting – can help achieve sustainability objectives. The group’s fund managers have a long history of actively engaging with companies they invest in on ESG matters and believe that ongoing dialogue with company management teams and boards of directors can provide differentiated insights and impact company behaviour.

Wellington’s analysts and research teams feed their findings on specific ESG issues into the investment teams to guide their engagements with companies. Those ESG issues are:

Environmental

Social

Governance

Carbon emissions

Labour union relations

Ownership structure and control

Water usage

Health and safety

Board composition

Waste management

Supply chain risks

CEO compensation

Climate change adaption

Cybersecurity

Shareholder rights

Source: Wellington, as at 30 November 2021.

In the next active edge blog, we’ll explain the similarities and differences between the Vanguard SustainableLife funds and Vanguard Sustainable Equity Fund – and how they might be suitable for client portfolios.

 

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Some funds invest in emerging markets which can be more volatile than more established markets. As a result the value of your investment may rise or fall.

Investments in smaller companies may be more volatile than investments in well-established blue chip companies.

Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Movements in interest rates are likely to affect the capital value of fixed interest securities. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment. The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.

The Funds may use derivatives in order to reduce risk or cost and/or generate extra income or growth. The use of derivatives could increase or reduce exposure to underlying assets and result in greater fluctuations of the Fund's net asset value. A derivative is a financial contract whose value is based on the value of a financial asset (such as a share, bond, or currency) or a market index.

Some funds invest in securities which are denominated in different currencies. Movements in currency exchange rates can affect the return of investments.

For further information on risks please see the “Risk Factors” section of the prospectus on our website at https://global.vanguard.com.

Important information

This article is directed at professional investors and should not be distributed to, or relied upon by retail investors.

This article is designed for use by and is directed only at persons resident in the UK.

The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this article is general in nature and does not constitute legal, tax, or investment advice. Potential investors are urged to consult their professional advisers on the implications of making an investment in, holding or disposing of shares of, and the receipt of distribution from any investment.

The Authorised Corporate Director for Vanguard Investment Funds ICVC is Vanguard Investments UK, Limited. Vanguard Asset Management, Limited is a distributor of Vanguard Investment Funds ICVC.

For further information on the fund’s investment policy, please refer to the Key Investor Information Document (“KIIDs”). The KIIDs for these funds are available, alongside the prospectus via Vanguard’s website https://global.vanguard.com.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority. © 2021 Vanguard Asset Management, Limited. All rights reserved.