Environmental, Social and Corporate Governance (ESG) are some of the most crucial things that should be considered for survival in the corporate space. Companies have their roles to play, but investors also want to know where their money ends up when they fork out cash for stocks.
Investments aren’t just simple buy-and-sell transactions anymore but require the use of your conscience to separate one choice from the next.
If you want to invest in Exchange-Traded Funds (ETFs) the right way, the best investments are sustainable and environmentally friendly.
An ESG ETF is a fund that guarantees responsible investments. ESG funds are free of investments in sex, tobacco, weaponry, and other corporate controversies. These so-called “sin stocks” can be taxed higher, and add unnecessary risk to your investments.
Green investment groups (counted as ESGs) could also exclude industries like fossil fuel industry investments, which adds to its rating as a sustainable investment.
Would you prefer to guarantee your investment is green, sustainable, and clean? Exchange-Traded Funds are popular. While they function much like individual stocks, investment in an ETF covers a broad range of companies that all trade at once.
When you invest in an ETF, your investment is spread throughout the strongest of the portfolio. Risks are mitigated as you’ll be diversified across the market, and returns can be large. This isn’t about making a quick dollar on buying low and selling high but rather long-term investing for success.
Here’s a detailed guide to the best ESG ETFs to invest in today, and all you could want to know about why these funds make a great investment.
Table of Contents
- FAQ About ESGs
- What Are ESG EFSs?
- What Are ETFs?
- How do you trade ETFs?
- Why are they great investments?
- Why Trade ETFs?
- Easier to Trade
- Cheaper To Sell
- Added Tax Benefits
- Company Transparency
- ETFs: What to Look For
- Assets Under Management
- Expense Ratio
- Bid-Ask Spread
- The Best ETFs to Invest in Today
- From the United States
- 1. iShares ESG Aware MSCI USA ETF (ESGU)
- 2. Vanguard ESG US Stock ETF (ESGV)
- 3. Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)
- 4. iShares MSCI USA ESG Select ETF (SUSA)
- 5. iShares MSCI KLD 400 Social ETF (DSI)
- 6. Xtrackers S&P 500 ESG ETF (SNPE)
- 7. iShares Global Clean Energy Fund (ICLN)
- 8. Parnassus Core Equity Fund (PRBLX)
- 9. Shelton Alpha Green Fund (NEXTX)
- 10. Pax Ellevate Global Women’s Leadership Fund
- 11. SPDR S&P500 FOSSIL FUEL FREE ETF
- 12. Boston Trust Walden Balanced Fund
- 13. 1919 Socially Responsible Balanced Fund (SSIAX)
- 14. Invesco MSCI Sustainable Future ETF (ERTH)
- 15. Invesco Solar ETF (TAN)
- 16. Invesco MSCI Green Building ETF
- 17. Global X CleanTech ETF
- Outside the United States
- 18. iShares ESG Aware MSCI EAFE ETF (ESGD)
- 19. Vanguard ESG International Stock ETF (VSGX)
- 20. iShares ESG Advanced MSCI EAFE ETF (DMXF)
- 21. IQ Candriam ESG International Equity ETF(IQSI)
FAQ About ESGs
What Are ESG EFSs?
ESG ETFs are exchange-traded funds that focus on environmental sustainability and corporate responsibility.
An ESG-focused fund can be thought of as the polar opposite of sin stocks. Unlike sin stocks that place their investments into industries like tobacco and alcohol, ESG-focused funds don’t.
Funds such as these focus on industries like technology, healthcare, and real estate instead. Sometimes, more than 1, 500 companies can be part of the same group. Others are smaller than 500 companies.
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What Are ETFs?
An exchange-traded fund gets traded just like individual stocks, but instead spread the investment through the entire fund portfolio.
Fund portfolios are larger, and this means that you are “buying into” a large scope of companies rather than just investing in a single one. Benefits are almost immediately obvious, aren’t they?
Exchange-traded funds are tracked on an index and traded by brokers or through broker platforms (and apps). A fund portfolio diversifies your potential profit and investment but minimizes your potential risk. If one company doesn’t do well, there are still 499 others who might be doing well for your investment.
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How do you trade ETFs?
Anyone can trade ETFs with a basic education in trading platforms, funds, and how they work. Brokerage platforms or trading apps can put you in touch with the international fund marketplace where it’s easy to trade with a simple click.
As a first warning, wise up to jargon and read at least one introduction to financial terms. Never “invest” by mashing buttons, but instead use common sense and reason to make your trading decisions. Minimal added fees might be charged by your brokerage platform or trading app.
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Why are they great investments?
Corporate responsibility matters and investment in sin stocks can mean that your entire portfolio is automatically riskier and gets taxed at a higher rate.
An investment in sustainable funds is an investment in the future. Exchange fund investments are also thought of to be instant access to a whole portfolio. You aren’t placing all your eggs in a single basket, you’re spreading out your amount of baskets – and that’s why investment in ETFs is profitable.
If you have ever wanted to turn your money into more, this could be the perfect opportunity.
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Why Trade ETFs?
Exchange-Traded Funds are far more popular than investing your money in individual stocks or shares. We all know the stock market can hold very high returns, but it can also be extremely risky.
If you place $1, 000 into a company that performs badly or tanks in the next week, you could stand to lose some or all of what you have invested. Fund investment is the answer. Investment is across the entire scope of the fund, whether 500 companies or 1, 500.
The trick is to choose the right ESG ETF for your needs. First, why trade ETFs in the first place? These are some of the most important reasons why exchange-traded funds make for a solid, recommended investment:
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Easier to Trade
Exchange-traded funds are easier to trade than mutual funds or individual shares. While investment in shares can hike up your operating costs in individual transaction fees, a simple ETF buy-and-sell transaction will buy the investor more (but cost much less).
With the right brokerage platform, you can get straight to your first fund investment in minutes.
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Cheaper To Sell
The stock market is a minefield of potential hidden costs: transaction and brokerage fees are not cheap. ETF trading still happens on the traditional stock market, but with few of the traditional costs associated with selling off your stock when you’re done.
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Added Tax Benefits
Corporate responsibility is an important aspect of the business. Added tax benefits can be granted to investors who have a diversified, green portfolio to count on – and less tax gets paid on investments and funds with a high ESG rating. Comparatively, investments in sin stocks are taxed at higher rates.
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Corporate responsibility also stretches to full accountability to (and for!) the company’s board. Companies under a fund with a high ESG rating will automatically have a higher transparency level. When it comes to important things like tax records and sales, expect ESG-rated companies to be an open book.
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ETFs: What to Look For
ETFs are not complicated, but there are a handful of terms that can be unfamiliar to investors who have just walked into the room. Assets under management, expense ratios, and the overall performance of the companies under your potential investors are all factors you should consider before you click.
Here are some of the most important terms you might see when investing in ESG ETFs.
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Assets Under Management
Assets under management is an industry term that describes the total investment value of the companies under the group umbrella. The higher the number, the more the companies are worth as a unit – and the more successful the investment might be in the future.
The expense ratio is what it will cost the investor to own their part of the exchange. While small at first, the amount is charged as a percentile of your total investment – and it can add up over time, so keep an eye on it.
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Spread is one of the most important stock market terms you should know. The bid-ask spread is the difference between the exact selling price and the exact buying price of a stock when the sale gets made. Thanks to real-time sales at fractions of a second, there can be a difference between what you pay and what you are quoted.
Differences are small, but can and will add up. With smaller purchases, the bid-ask spread can be larger. New traders can misunderstand the bid-ask difference at first. Don’t let this cost you!
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Risk should always be thought of as an investor or entrepreneur. While it’s okay to take risks, it’s not okay to jump straight into a volcano with your eyes closed. Always think before you finalize a trade.
Investment in a socially and environmentally responsible fund automatically lessens your risk as an investor. From a company’s carbon footprint to its involvement in corporate scandals, all of this can drag funds and their worth to the ground. An ESG ETF can guarantee that this doesn’t happen.
Ready to go through the best options out there?
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The Best ETFs to Invest in Today
From the United States
The iShares ESG Aware MSCI USA fund was first established for investment in 2016 and brings the investor immediate exposure to the biggest companies in the US stock market right now.
A single investment into the ESG Aware fund guarantees a fast, diverse portfolio that encompasses some of the biggest companies in the United States.
Combined assets are worth more than an estimated $22.3 billion. Its overall holdings are spread out over several industries like healthcare and real estate, but this fund keeps a very strong focus on technology.
The Aware fund has a preference for companies with a high ESG rating, which is exactly what you are looking for in a green investment fund. Investors are guaranteed investments free of the tobacco and alcohol industry, as well as others like the adult entertainment industry.
As a sustainable investment, the ESG Aware fund also guarantees that your investment is free of any companies with business in deforestation, weapons, or anything potentially harmful to the stock.
One drawback that lowers its overall rating is the group’s investment in oil, fuel, and gas companies. If you can look past this, they are one of the most powerful ESG ETF options.
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2. Vanguard ESG US Stock ETF (ESGV)
Vanguard ESG US Stock is a top-rated ESG for sustainable investing that has been around since 2018. Focus is broad, with its portfolio containing more than 1, 500 different companies under the Vanguard (US) umbrella.
It’s one of the largest (by-company) investments on this list. Even if you don’t recognize the Vanguard name, you’ll know the majority of company names that make up the 1, 500 list – including familiar ones like Comcast.
If you want your investment to be a very broad one through several industries, then Vanguard is always a strong option.
Oil and gas companies are excluded, which increases its rating as an environmentally friendly investment. Traditional sin stocks (like alcohol and tobacco, adult entertainment, and the gambling industry) are all guaranteed to be excluded from the group.
Vanguard is one of the best ESG ETFs you can choose. Their performance has stayed steady since their first launch in 2018.
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3. Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)
The MSCI USA ESG Leaders Equity ETF is new and was only launched in 2019, but has already managed to bring together a vast selection of assets worth at least $3.9 bn and climbing further up.
Fossil fuel companies are included and reduce the green rating of their overall portfolio. This doesn’t limit its reach, and it’s still a sound sustainable ETF that excludes investment in traditional sin stocks that can bring your own portfolio down.
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The iShares MSCI USA ESG Select ETF was launched in 2005 and is one of the best-performing sustainable ETF choices at the time of writing. It happens to be one of the oldest funds with a sustainable focus, and its assets are estimated worth at least $3.8 bn.
While the oldest, it also happens to be the smallest umbrella when measured by the number of companies. The Select fund relies on a small cluster of 200 companies, with tech and healthcare investment as its main focus. Mid-to-large companies are the bulk of its strength as an ESG portfolio.
Traditional sin stocks are not included in this fund, including tobacco, alcohol, and adult entertainment. While this increases its overall green rating, investment in a select few fossil fuel companies brings it down by a bit.
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The MSCI KLD 400 Social fund has been in operation since 2006: it’s one of the most popular options right now if you want to invest in a powerful yet guaranteed green portfolio that tracks more than 400 companies.
As a whole, the assets are estimated to be worth at least $3.5 bn through its holdings. It ranks high as an ESG ETF thanks to its exclusion of traditional sin stocks like the tobacco and adult entertainment industries.
The KLD 400 also has a higher ranking thanks to its further inclusion of companies in the business of GMOs. It can’t be perfect, though: KLD 400 isn’t completely green and still invests in select fossil fuel and gas companies.
6. Xtrackers S&P 500 ESG ETF (SNPE)
The Xtrackers S&P500 is one of the best socially responsible ETFs out there: it is recommended often if you are looking for a comprehensive investment umbrella that covers several industries at once.
S&P500 covers 500 successful companies, with a focus on technology and communication investments. It’s almost guaranteed that your investment goes to 500 of the largest brand-name companies on the market.
As a clean investment, the S&P500 portfolio is guaranteed to be free of investment in tobacco and alcohol, weapons, and adult entertainment. Unfortunately, the S&P500 does include investment in a select few fossil fuel companies, bringing the rating down.
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The iShares Global Clean Energy Fund is one of the best ESG ETF funds when it comes to sustainable investment groups. First brought to launch in 2008, it focuses on companies in the business of solar, wind, and other renewable sources of energy.
All investments are guaranteed to be clean of traditional sin stocks: no alcohol, tobacco, or adult entertainment industry investments here. No nuclear weapons, civilian firearms, or coal investments.
Their clear and only focus is the Global Clean Energy Fund, which could be your fit if your need is a completely sustainable ESG.
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8. Parnassus Core Equity Fund (PRBLX)
The Parnassus Core Equity Fund is sold under the label of a completely fossil-free fund, which keeps its investments ethical and environmentally sound.
Parnassus controls more than $31m in assets through its portfolio. Assets include companies such as Microsoft Corporation and Comcast amongst hundreds of other reliable options. Diversity is one of the best attributes of Parnassus. The group has a focus on technology, communication, and IT, but also branches out into other things (like healthcare and real estate investments).
If you need a strong and responsible fund to invest in, Parnassus stands tall above its competitors.
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9. Shelton Alpha Green Fund (NEXTX)
The Shelton Alpha Green Fund was first introduced as an environmentally-friendly fund in 2013. It’s one of the single best ETFs with ESG for a completely guaranteed green investment portfolio – that’s what they do best.
Approximately $340m in assets make up the Shelton Alpha. Each participant is chosen by the Alpha Green Fund Managers and screened against their criteria for what makes a green investment.
Their unique approach is what makes them a perfect ESG investment: they invest only in green companies.
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10. Pax Ellevate Global Women’s Leadership Fund
The Pax Ellevate Global Women’s Leadership Fund is worth more than a total of $822.7 billion in combined investments. More than 400 different companies make up this great ETF that has its focuses specifically on companies that promote gender equality in the workplace.
Companies are all owned, ran, and managed by powerful female leadership figures. Gender diversity also counts as a form of corporate responsibility: it does not just apply to a simple carbon footprint for a company.
It’s an empowering thought, and it works for high returns. International, well-known companies like Estee Lauder make up part of the 400 companies within this choice ETF.
11. SPDR S&P500 FOSSIL FUEL FREE ETF
The S&P500 Fossil Fuel Free ETF is almost like regular investment in the S&P500, but minus its involvement in the companies that invest in oil, gas, and fossil fuels.
Approximately 10 fewer companies appear on this listing than on the regular S&P500. Investment in fossil fuels is to be avoided for some investors, and if that’s you, here’s your next potential investment option.
There are still 490 companies that make this a great ETF to chase. Sustainability is the keyword for this ETF It’s worth approximately $1 billion in assets, and has been operating with great returns since 2015.
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12. Boston Trust Walden Balanced Fund
The Boston Trust Walden Balanced Fund is one of the largest portfolios for a diverse, sustainable investment. The bulk of the fund consists of a governmental portfolio, which is part of what gives it it’s strength.
Assets are worth more than $190 million: it doesn’t take much explanation to show why this could be an excellent choice. The most common sin stocks are avoided: no alcohol or tobacco companies, avoidance of the adult entertainment industry, fossil fuels, and weapon industry investments.
While not mentioned often, this is one of the funds to watch for big returns in the near future. Previous returns point to its potential strengths.
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13. 1919 Socially Responsible Balanced Fund (SSIAX)
The 1919 Socially Responsible Balanced Fund first opened for investment in 1992, and it’s still going strong as an environmentally friendly and sustainable investment fund.
What’s notable about this fund is that it’s one of the top ESG ETF recommendations by Forbes.com. When Forbes says it’s something to watch, you can usually take their word for it!
The 1919 Fund focuses on businesses that have a low carbon footprint, and ones that make a sustainable difference – and can prove it.
If you are looking for a great sustainable ESG ETF that comes recommended, the 1919 Fund might be it. Common sin stocks (alcohol, tobacco, adult entertainment) are avoided, though the portfolio does contain a minor amount of investment in fossil fuel companies.
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14. Invesco MSCI Sustainable Future ETF (ERTH)
The Invesco MSCI Sustainable Future ETF was first founded in 2006, and its portfolio is based on the Global Environment Select Index. This matters when it comes to ESG ETFs.
What makes this great is that it focuses on sustainability throughout the entire bulk of its portfolio. At least 80% of its wealth is well-diversified in alternative energy companies, sustainable buildings, and other environmentally-friendly industries.
Why should you consider this option for your ESG ETF investment? Invesco is a leader in the sustainable energy field. Tesla, Central Japan Railway Company, and SolarEdge Technologies are just three of the reasons why this is a good choice.
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15. Invesco Solar ETF (TAN)
The Invesco Solar ETF is a comprehensive and sustainable fund option that might not be as large as its counterparts, but is much more specific in its focus – and still holds just as much investment power.
Absolutely no forms of sin stocks are seen here: deforestation, the weapons industry, adult entertainment, tobacco, weapons, and other potentially risky stocks are better left to other investors – and here, completely clean.
Solar energy is sustainable, but also popular and profitable. Companies that provide solar energy are making a multimillion-dollar turnover, and these companies side with Invesco. It’s why this fund is worth your time. First Solar, Daqo New Energy Corp ADR, and Enphase Energy are just 3 of the companies that make up the Invesco Solar portfolio.
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16. Invesco MSCI Green Building ETF
The Invesco MSCI Green Building ETF is one more possible option for investors who chase absolute sustainability in their business decisions. Unlike other Invesco options, this fund is built around a core of sustainable, green building companies.
The Green Building ETF comprises successful companies in construction, material, and related industries. All the companies that are part of this fund bring the world one step closer to sustainable buildings – and a better environment.
With no oil or gas investments, the Invesco MSCI Green Building ETF is ideal for investors who want to build a smarter, cleaner portfolio that will work for them.
Other forms of sin stocks (alcohol, tobacco, and the adult entertainment industry) are also included as with the majority of ESG ETF options.
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17. Global X CleanTech ETF
GlobalX CleanTech is an international fund with a focus on technology and healthcare throughout its entire portfolio. While it’s a newer addition to the fund list and was only started in the latter part of this decade, CleanTechETF is fast rising as one of the most popular options for maximum returns amongst the environmentally conscious.
Not only does CleanTech omit most forms of sin stocks from its investment portfolio, but its main focus is also technology – and how it can be made better and more sustainable.
All companies on the GlobalX CleanTech roster have a low carbon footprint and implement environmentally friendly business models. That keeps CleanTech up top as a potential ETF, and it’s going up in terms of what it can do for you.
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Outside the United States
The iShares ESG Aware MSCI EAFE fund invests its portfolio throughout three main international territories: the United Kingdom, Japan, and France. It excludes the traditional forms of sin stocks, like alcohol and tobacco, gambling, or the adult entertainment industry.
A crucial element that sets this apart is the inclusion of fuel giant, BP. Fossil fuel and gas investments are, unfortunately, part of this portfolio – and it brings their overall green rating down
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19. Vanguard ESG International Stock ETF (VSGX)
Vanguard ESG International Stock is one of the best ESG ETFs on the stock market, but also one of the largest overall. Vanguard ESG ETFs are made up of more than 5, 000 different individual companies.
Territories are spread throughout the United Kingdom, Hong Kong, and Japan. Vanguard has a widespread focus but angles its approach to technology, communication, and commerce. Some of the largest tech companies can be found here, including Alibaba and Tencent.
It’s an excellent ESG option due to what it excludes from the portfolio: the adult entertainment industry, gambling, weapons, and any investments in fossil fuels. A completely green approach to its investment portfolio makes Vanguard a high-rated ESG ETF, especially for tech.
The iShares ESG Advanced MSCI EAFE ETF (MFXF) is one of the newest ESG ETF options on this list: it first launched in 2020. While it might be newer, it’s already climbing the ranks as a popular ESG ETF investment.
More than $250 million in assets make up this ETF option. Investments are spread out over three main territories: the United Kingdom, France, and Japan.
It’s particularly notable for its high environmental ranking. It gets this thanks to cutting out all forms of fossil fuel, coal and gas investment from its portfolio. Investment is guaranteed to be completely green.
Other forms of traditional “sin stocks” are guaranteed to be absent from investment here. This includes the tobacco and alcohol industries, adult and club entertainment, and any investment in weapons.
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21. IQ Candriam ESG International Equity ETF
The IQ Candriam ESG International Equity ETF was first launched for public investment in the year 2019. Candriam wields most of its power in the United Kingdom, France, and Japan – although some of its investments branch out into further international branches.
Candriam contains a total of 674 international holdings at the time of writing. Fossil fuel and coal investments are not excluded for Candriam, which can be a potential drawback for a clean investment.
The most traditional forms of “sin stocks” are excluded from Candriam: the tobacco and alcohol industries, adult and nightclub entertainment as well as any potential investment in the defunding of weapons.
As a hugely comprehensive international index, Candriam pulls a lot of weight. The success of its more than 600 individual companies can’t be wrong.
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