Screening fossil fuel companies out of index funds may be more difficult than with actively managed investments, but it is possible – and the stakes of this moment call for bold action to ensure a livable future!

Index funds attempt to follow a cross section of the stock market, to give investors steady gains over time. But Vanguard still has discretion over which companies to invest in when it assembles a diverse fund. Vanguard can screen the worst fossil fuel companies out of its index funds without straying too far from the benchmark of the original indices. Additionally, Vanguard can create funds that are already divested from fossil fuels and make them the default option for new customers, thus substantially increasing the amount of money invested in climate-friendly funds. 

References:

Passive investors’ hands aren’t tied on fossil fuels. Responsible Investor.

Vanguard Group: Passive About Climate Change. Institute for Energy Economics and Financial Analysis.

Vanguard and Universal Ownership. Universal Owner. 

The Passives Problem and Paris Goals: How Index Investing Trends Threaten Climate Action. The Sunrise Project.