Funds focusing on environmental, social and governance (ESG) issues have emerged on the investment scene in recent years as institutions and individuals pay more attention to how their money is invested. According to Bloomberg Intelligence, assets managed according to ESG principles topped $35 trillion in 2020 and are expected to grow above $50 trillion by 2025.
Here are some of the best ESG funds trading on the market today.
What is ESG investing?
ESG investing focuses on three key areas: environmental, social and governance:
- Environment – focuses on issues related to the protection and conservation of the environment. Energy consumption, use of natural resources, waste management and air emissions are factors that play a role in investing with an environmentally conscious mindset.
- Social – focuses on the way companies interact with employees, suppliers, customers and their communities. Factors that can influence investments include labor standards, safety, workforce diversity, healthcare and more.
- Management – focuses on company leadership and shareholder rights. Investors focused on governance issues might look at the composition of the board of directors and consider their independence and diversity. Other factors include executive compensation, tax transparency and shareholder voting rights.
With the tremendous growth of ESG funds, it can be difficult to sort through the best investment options. Here are some of the best ESG ETFs to consider for your portfolio (Data as of April 3, 2024).
Best ESG funds
Vanguard ESG US Stock ETF (ESGV)
The Vanguard ESG US Stock ETF seeks to match the performance of the FTSE US All Cap Choice Index and screens for certain ESG criteria. Certain companies in the following sectors are excluded from the fund: adult entertainment, alcohol, fossil fuels, gambling, nuclear energy, tobacco and weapons.
- 5-year return (annualized): 14.6 percent
- Cost ratio: 0.09 percent
- Top positions: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and NVIDIA (NVDA)
iShares Global Clean Energy ETF (ICLN)
The iShares Global Clean Energy ETF seeks to track the performance of an index of global clean energy sector stocks. These companies produce energy from renewable sources such as sun and wind. The fund has approximately 100 investments.
- 5-year return (annualized): 8.0 percent
- Cost ratio: 0.41 percent
- Top positions: First Solar (FSLR), Enphase Energy (ENPH), Vestas Wind Systems (VWDRY) and Orsted (DNNGY)
iShares ESG MSCI USA Leaders ETF (SUSL)
The iShares ESG MSCI USA Leaders ETF gives investors exposure to large- and mid-cap stocks that score highly on ESG issues compared to their peers. The fund avoids holdings with low ESG ratings or serious controversies.
- 3-year return (annualized): 11.5 percent
- Cost ratio: 0.10 percent
- Top positions: Microsoft, Eli Lilly (LLY), Alphabet (GOOG) and NVIDA
Nuveen ESG Large-Cap Value ETF (NULV)
The Nuveen ESG Large-Cap Value ETF uses a passive approach to invest in large-cap companies with value characteristics that also meet certain ESG criteria. The fund has more than 100 positions.
- 5-year return (annualized): 7.9 percent
- Cost ratio: 0.26 percent
- Top positions: Coca-Cola (KO), The Walt Disney Company (DIS), PepsiCo (PEP) and Procter & Gamble (PG)
SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
The SPDR S&P 500 Fossil Fuel Reserves Free ETF gives investors focused on climate change exposure access to the S&P 500 and eliminates fossil fuel companies. It’s an excellent choice if you’re looking for a fairly traditional investment position with a slight focus on climate change.
- 5-year return (annualized): 14.4 percent
- Cost ratio: 0.20 percent
- Top positions: Apple, Microsoft, Amazon and NVIDIA
iShares MSCI Global Sustainable Development Goals ETF (SDG)
The iShares MSCI Global Sustainable Development Goals ETF seeks to track the performance of an index composed of companies that derive the majority of their revenues from products and services that address at least one of the world’s greatest social and environmental challenges, as defined by the United Nations. . These goals include climate action, education, clean water and more.
- 5-year return (annualized): 7.1 percent
- Cost ratio: 0.49 percent
- Top positions: Alstom (ALSMY), Vestas Wind Systems, Daiwa House Industry (DWAHY) and Umicore (UMICY)
iShares ESG-conscious MSCI USA ETF (ESGU)
The iShares ESG Aware MSCI USA ETF tracks the performance of an index of US companies with ESG characteristics that exhibit a similar risk and return profile to the general MSCI USA Index. The fund includes large and mid-cap U.S. stocks, and those looking for exposure to high-performing stocks with an ESG focus will find what they’re looking for here.
- 5-year return (annualized): 14.2 percent
- Cost ratio: 0.15 percent
- Top positions: Apple, Microsoft, Amazon and NVIDIA
In short
The popularity of ESG funds has skyrocketed in recent years and these funds are an easy way to make an impact with your investments. ETFs give investors access to diversified portfolios at a fairly low cost, making them an ideal investment for many portfolios.
However, make sure you do your research before investing. Some funds may charge high expense ratios, and as ESG has taken off as an investment approach, some funds include ESG in their name but may not have strict guidelines for following the strategy. Make sure the ETF’s investments are consistent with the approach you are looking for.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
