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How Vanguard Funds Harm and Fuels Extractive Industry

Pennsylvania based asset manager, Vanguard, is the world’s second largest asset manager, with over $8 trillion in assets under management (AUM). Vanguard’s enormous reach has led financial firms to question “What Happens When Vanguard Owns Everything?” Vanguard is referred to as a “universal owner,” with ownership stake in over 10,000 corporations. The financial institution dominates market environments and consequently has the ability to set industry norms. Asset managers have largely ignored calls for divestment from extractive industries. Asset managers, like Vanguard, have failed to include a robust racial and environmental justice orientation in their business practices. In turn, they flood extractive industries with capital. Industries like the carceral and fossil fuel industries use those investments to extract from low-income and BIPOC communities. Despite Vanguard’s public commitments, in the wake of a national uprising against racialized police violence and an ever present climate crisis, our analysis shows that Vanguard has not taken adequate steps to move the needle toward racial or environmental justice.

This report (1) critiques Vanguard’s governance practices and charitable giving vehicles and (2) highlights how Vanguard’s loose definitions of social justice and inadequate screening tools allow capital to be deployed to extractive industries via funds touted as both environmentally and socially responsible. Low income and BIPOC communities have called for divestment from extractive industries. Vanguard’s investment vehicles, however, remain financial drivers of harmful industry. 

While ESG funds are a nod toward the need for change, Vanguard’s current ESG standards are insufficient. We propose a new set of rigorous standards that incorporate an intersectional analysis of high risk extractive industries that directly impact low-income and BIPOC communities. We have created three categories, based on type of industry, to assess sectors that pose a high risk for low-income and BIPOC communities: (1) dirty dollars, the financiers of extractive industries, (2) polluters and (3) carceral corporations. We refer to sectors and corporate entities as high risk when they are major sources of pollution, violence, or extraction in low-income and BIPOC communities. The research uses data from Vanguard’s two largest U.S-based equity ESG funds: ESG U.S. Stock ETF (ESGV) and FTSE Social Index Fund Admiral Shares (VFTAX). 

Vanguard’s ESG funds invest billions in sectors that pose a high risk for low-income and BIPOC communities. Nearly one third, or 32%, of the holdings in Vanguard’s largest U.S.-based ESG funds are in high risk sectors. This amounts to a total of nearly $6 billion in market value through these two ESG funds alone. From weapons manufacturers like Axon Enterprise to legacy polluters like Dow Chemical, Vanguard’s ESG funds are riddled with extractive industries. Furthermore, the limited, and often flawed, scope of Vanguard’s charitable vehicles is not enough to counteract the harms of the corporations in its funds. As communities continue to resist extractive industries and investors seek out sound, socially responsible funds, Vanguard’s ESG portfolio will not measure up if the asset manager does not shift its practices.

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Key Findings

Vanguard’s ESG funds hold billions of dollars in investments in sectors that pose a high risk for low-income and BIPOC communities.

Currently, Vanguard oversees nearly $6 billion in investments in high risk sectors in the studied funds that perpetuate environmental and racial injustices.

Vanguard’s U.S.-based equity ESG investments total:

  • $1.4 billion in the polluters category
  • $1.3 billion in the dirty dollars category and; 
  • $3.3 billion in the carceral corporations category.

Vanguard’s ESG screening tools lack the rigor necessary to filter out extractive industries.

ESG investing can take many forms and use a variety of tools to determine how investment decisions are made and structured. Vanguard’s ESG funds track indices provided by a third party to inform what corporations are in its funds. This third party uses exclusionary screens to determine which sectors are kept out of its ESG indices and therefore out of Vanguard’s ESG funds. These exclusionary tools fail to exclude corporations like Dow Inc., Amazon, and BlackRock from the funds, despite the well documented harms the corporations have caused in BIPOC communities in the United States and across the Global South.

Vanguard’s tools focus on controversiality and potential issues, such as human rights, labor, environment and anti-corruption, drawn from the United Nations corporate sustainability principles. Because these tools do not center racial or environmental justice, there are glaring missteps in the construction of Vanguard’s ESG funds. The ESG tool labels alcohol, firearms, oil, coal and gas, and adult entertainment as controversial or potential issues, but does not screen other extractive and exploitative sectors, like chemicals, mining, defense, and surveillance software. And while it filters out firearms, weapons manufacturer Axon Enterprise remains in the ESG fund.

Vanguard’s donor-advised funds channel money to hate groups.

Vanguard Charitable’s most recent filing with the Internal Revenue Service (IRS) reports at least $15.1 million to 34 groups belonging to what environmental sociologist Robert Brulle termed the “climate change counter-movement” and $401,000 in donations to five organizations identified as hate groups by the Southern Poverty Law Center (SPLC) in the most recent fiscal year. Some donations include: 

  • $2.3 million for the Mercatus Center, an influential Koch and Big Oil funded think tank at George Mason University that has advanced deregulation around climate and environmental policy;
  • $1.5 million for the Atlas Network, a global network of think tanks funded by Koch, Exxon, and other high profile funders of the climate denial movement;
  • The David Horowitz Freedom Center, an anti-Muslim group which received $100,000. The Southern Poverty Law Center has labelled Horowitz “the godfather of the modern anti-Muslim movement;”


As pressure to divest from extractive industries mounts amidst demands for safe and sustainable futures, asset managers can no longer conduct business as usual. Investors are becoming more responsive to climate,environmental, and social justice demands made by advocates. Directly impacted communities are holding extractive corporations accountable, such as those within the fossil fuel and carceral industries. Real change requires institutions to shift to meet the needs of impacted communities. We recommend regulators and asset managers take a three-pronged approach to begin shifting away from extractive economies: (1) disclose (2) divest and (3) repair. Below are key recommendations to transition toward a safe and sustainable future:


Strengthen SEC Regulation of ESG Investing 

Because the Securities and Exchange Commission (SEC) is responsible for regulating capital markets and protecting investors, it must strengthen regulation and enforcement of ESG investing. The SEC’s current disclosure rules on ESG investing fail to meet the needs of values-based investors and frontline communities. This poses serious material risk to Vanguard’s investors. 


Fully divest from carceral and fossil fuel industries, beginning with ESG portfolio investments 

ESG investments should promote sustainable and safe investments. Currently, Vanguard’s ESG portfolios are riddled with investments in extractive industries that could be misaligned with the values of a conscious investor. Instead of “woke-washing” their ESG investments, Vanguard must create tangible divestment plans that phase out funds from carceral and fossil fuel industries, along with divestment strategies for the financiers that prop up these institutions. Vanguard also has the power to exclude these companies from its larger index funds and should advocate for index provider companies to enact stronger standards in its underlying benchmarks. 

Strengthen Donor Advised Fund (DAFs) Standards and Disclosures 

Asset managers and corporations have shoveled millions of dollars to groups that further systemic oppression by enabling wealthy individuals to use donor-advised funds (DAFs) to make anonymous donations to them. Vanguard should develop and implement standards and practices that align their donor agreements with hate-free and anti-discrimination policies. Standards should explicitly prohibit the use of DAFs to fund groups that further systemic oppression. Vanguard should discontinue any transmission of funds to groups whose statements or practices malign or attack entire classes of people because of their race, ethnicity, religion, national origin, gender identity, or sexual orientation. 

Currently, oversight for DAFs rests within the IRS’s jurisdiction, but its oversight of 501(c)(3) charities housing DAFs is lax at best. The IRS should strengthen its DAFs reporting requirements and develop accountability mechanisms so that donations to groups that further systemic oppression cannot fly under the radar and can be met with real consequences. 


Make Reparations to Directly Harmed Communities 

Vanguard must deliver reparations to communities directly harmed by their investments. There is a robust and centuries-long history of calls for reparations that can inform these processes. The Movement for Black Lives says reparations involve “specific forms of repair to specific individuals, groups of people, or nations for specific harms they have experienced in violation of their human rights.” In order to achieve repair four conditions must be met: (1) obligation to cease the harmful act and assurances the cessation will remain in effect (2) restitution and repatriation (3) compensation and (4) satisfaction from the impacted group.  While these conditions  inform how reparations are made, ultimately this should be defined by the communities who have been directly impacted by the harm.

Elect racial, economic and climate justice champions to Vanguard’s board of directors

In order for Vanguard to move toward divestment and repair, Vanguard needs new leadership. New leaders should represent the communities directly impacted by Vanguard’s investments and should be willing to drive processes to improve the firm’s governance and investment practices. 

Asset managers, like Vanguard, have played a significant role in financing pollution, violence, and harassment in Black, Brown, and Indigenous communities by pumping billions of dollars into these industries for years. To begin to repair the harm Vanguard has financed, it is critical that Vanguard elects racial, economic, and climate justice champions to its board of directors to ensure that the perspectives of frontline BIPOC communities and allies are represented at the highest level of Vanguard’s decision making.

Click here to read the full report ≫