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Funds focused on environmental, social and governance issues (ESG) have continued to have significant appeal in recent years, as institutions and individuals pay greater attention to the way their money is invested. Assets managed with ESG principles are expected to hit $40 trillion by 2030, according to Bloomberg Intelligence.
Here are some of the best ESG funds currently trading on the market.
What is ESG investing?
ESG investing focuses on three key areas – environmental, social and governance:
- Environmental – focuses on issues related to environmental protection and conservation. Energy use, use of natural resources, waste management and air emissions are factors that come into play when investing with an environmental mindset.
- Social – focuses on how companies treat employees, suppliers, customers and their communities. Factors that can impact investments include labor standards, safety, diversity of workforce, healthcare and more.
- Governance – focuses on a company’s leadership and rights of shareholders. 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 pay, tax transparency and voting rights of shareholders.
With the massive growth in ESG funds, it can be difficult to sift through the best investment opportunities. Here are some of the best ESG ETFs to consider for your portfolio (Data as of Dec. 18, 2024).
Best ESG funds
Vanguard ESG U.S. Stock ETF (ESGV)
The Vanguard ESG U.S. Stock ETF tries to match the performance of the FTSE U.S. All Cap Choice Index and screens for certain ESG criteria. Certain companies in the following industries are excluded from the fund: adult entertainment, alcohol, fossil fuels, gambling, nuclear power, tobacco and weapons.
- 5-year return (annualized): 15.7 percent
- Expense ratio: 0.09 percent
- Top holdings: 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 stocks from the clean energy sector. These companies produce energy from renewable sources such as solar and wind. The fund has around 100 holdings.
- 5-year return (annualized): 7.3 percent
- Expense ratio: 0.41 percent
- Top holdings: First Solar (FSLR), Iberdrola (IBE), SSE (SSE) and Enphase Energy (ENPH)
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 relative to their sector peers. The fund avoids holding companies with low ESG ratings or severe controversies.
- 5-year return (annualized): 16.2 percent
- Expense ratio: 0.10 percent
- Top holdings: Microsoft (MSFT), NVIDIA (NVDA), Tesla (TSLA) and Alphabet (GOOG)
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 holds more than 100 positions.
- 5-year return (annualized): 8.5 percent
- Expense ratio: 0.26 percent
- Top holdings: Coca-Cola (KO), International Business Machines (IBM), The Walt Disney Company (DIS) and McDonald’s (MCD)
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 to the S&P 500 while eliminating companies that own fossil fuel reserves. It’s a great choice if you’re looking for fairly traditional investment exposure with a slight focus on climate change.
- 5-year return (annualized): 15.5 percent
- Expense ratio: 0.20 percent
- Top holdings: Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA) and Amazon (AMZN)
iShares MSCI Global Sustainable Development Goals ETF (SDG)
The iShares MSCI Global Sustainable Development Goals ETF seeks to track the performance of an index made up of companies that derive the majority of their revenue from products and services that address at least one of the world’s major social and environmental challenges as defined by the United Nations. These goals include climate action, education, clean water and more.
- 5-year return (annualized): 9.7 percent
- Expense ratio: 0.49 percent
- Top holdings: Enphase Energy (ENPH), AstraZeneca (AZN), First Solar (FSLR) and Vestas Wind Systems (VWS)
iShares ESG Aware MSCI USA ETF (ESGU)
The iShares ESG Aware MSCI USA ETF tracks the results of an index of U.S. companies with ESG features that show a similar risk and return profile as the overall 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-bent may find what they’re looking for here.
- 5-year return (annualized): 15.7 percent
- Expense ratio: 0.15 percent
- Top holdings: Apple (AAPL), NVIDIA (NVDA), Microsoft (MSFT) and Amazon (AMZN)
Bottom line
The popularity of ESG funds has soared in recent years, and these funds are a simple 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.
Be sure to do your research before investing, however. Some funds can charge high expense ratios, and as ESG has taken off as an investment approach, certain funds include ESG in their name, but may not have strict guidelines for following the strategy. Be sure the ETF’s holdings are consistent with the approach you’re looking for.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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