11 Best Fossil Fuel Free Funds for ESG Investing

In the short-term, fossil fuels can be a good addition to your portfolio due to their widespread usage. However, issues like dwindling resources make fossil fuel a poor choice for long-term growth.

Plus, a growing number of investors are becoming aware of environmental and societal issues and want to avoid investments with a negative impact on people and the environment.

The good news is that more fund managers are embracing fossil fuel divestment and offering more funds with no or few fossil fuel investments.

Let’s take a closer look at some of the top fossil fuel free funds you can add to your portfolio.

List of Best Fossil Fuel Free Funds

1. Best for Exposure to a Large Blend of U.S. Equities: SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)

The S&P 500 Index reflects the performance of the top 500 publicly-traded companies in the U.S. The fluctuations of this index often reflect how the economy is doing as a whole.

You can gain exposure to this index via an S&P 500 index fund. These funds are a cornerstone of many investment strategies. There are several benefits to investing in an S&P 500 fund.

You’re investing in major companies, which means there is no extensive due diligence required. Fees are usually low, and you’re getting broad exposure to the top-performing companies in the country.

There are different options to consider to add an S&P 500 index fund to your portfolio, like VOO, IVV, or SPY. However, all these funds also track stocks from companies involved in fossil fuels.

SPYX is an alternative that gives you exposure to most of the companies that make up the S&P 500 while excluding the businesses that produce fossil fuel. It’s a slightly smaller fund with a little over 480 stocks instead of 500, but there are still $1.35 billion in assets under management.

However, the non-profit FossilFreeFunds.org estimates that around 4% of this fund gives you exposure to fossil fuels. You’re not completely avoiding fossil fuel investments with this fund, but it’s a much better alternative to options like SPY or VOO if you want exposure to the S&P 500 Index.

See Related: Best Climate Change Mutual Funds

2. Best for Investing in Large Cap U.S. Stocks: AXS Change Finance ESG ETF

The CHGX fund gives you exposure to a large blend of U.S. stocks. The focus is on stocks with a large cap, which is ideal for investors seeking stability, clear valuation, and slow growth.

We recommend this fund as a fossil fuel free investment because the fund managers are accountable for the stocks they choose. They have to report to the US-SIF organization and submit a sustainability report to Morningstar.

This fund has absolutely no exposure to fossil fuels and even includes stocks from companies with low carbon emissions as a whole.

You’ll find a mix of around 100 products in this fund. You’ll find some large cap stocks as well as Real Estate Investment Trusts or REITs. Overall, the fund has a good balance and is well diversified. There are a total of $111.94 million assets under management.

Change Finance uses advanced Environmental, Sustainability, and Governance (ESG) criteria to add stocks to this fund and exclude some products.

The fund managers not only look at fossil fuel production and usage, but they also look for things like tobacco, military weapons, pesticides, nuclear energy, and more. They also exclude companies that have violated human rights or labor rights or even polluted the environment.

We recommend this fund because of the advanced ESG criteria used to select new products, and because it’s a great option for investors with a low-risk tolerance who want stability and slow growth.

See Related: How to Invest in Renewable Energy

3. Best for Exposure to Emerging Markets: iShares ESG Advanced MSCI EM ETF (EMXF)

EMXF is an international equity fund. The focus is on emerging markets, which means you will get exposure to the economy of different developing nations.

This fund contains less than 0.01% of fossil fuels. It’s a blend of large and mid-cap stocks from companies that have strong ESG policies and that tend to perform well.

The fund managers use their own ESG ratings to exclude some companies from the fund. They won’t add any businesses involved in weapons, palm oil, tobacco, predatory lending, GMOs, nuclear power, for-profit prisons, adult entertainment, and more.

Foreign equities can be a good way of diversifying your portfolio. However, due diligence can be difficult to perform when researching foreign companies. We recommend EMXF because there is a thorough screening process to exclude companies involved in fossil fuels and other controversial activities.

Before you invest in EMXF, you should know that emerging markets can be volatile. This fund mitigates risks by giving you exposure to different countries and cap sizes, but it’s still an investment vehicle that is suitable for a more aggressive strategy with higher risk tolerance.

See Related: Best ESG Target Date Funds

4. Best for Exposure to Developed Markets: iShares ESG Advanced MSCI EAFE ETF (DMXF)

DMXF has a similar philosophy to EMXF. However, this fund focuses on developed markets and can balance a portfolio if you’re seeking exposure to international markets.

This fund is a good option for ESG-conscious investors since it contains around 0.05% of fossil fuel investments. It’s a mix of large and mid-cap stocks with $271.72 million in assets under management.

With DMXF, you’ll gain exposure to companies with good ESG practices in the European, Australian, and Asian markets.

The screening criteria are similar to the ones used for the EMXF Fund.

However, you’ll get exposure to different, more stable and developed markets. This fund is a great addition to your portfolio if you want to diversify your investments through global exposure while investing in companies that are building a better tomorrow.

See Related: Best Mutual Funds to Invest in Today

5. Best for Investing in Tech and Industrial Companies: Riverbridge Eco Leaders (RIVEX)

This fund is smaller compared to the other investment vehicles on this list. We recommend RIVEX because it’s a fund that performs well and that has received high ratings. Morningstar currently has a four-star rating for this fund.

RIVEX gives you exposure to roughly 50 different companies.

There are different cap sizes for diversity, but you’ll find many major U.S. companies like Microsoft or Tesla. You’ll also find stocks like Salesforce, Starbucks, or Amazon. The total weighted average market cap is $119.4 billion.

Overall, RIVEX offers a good mix for those seeking exposure to different sectors. There is an emphasis on tech companies that represent around 38% of the fund, and industry leaders that make up around 27% of the fund. You’ll also get exposure to healthcare, a sector that accounts for around 14% of RIVEX.

The management team uses a screening process to choose companies with good ESG practices. Overall, this fund is a great way of diversifying your portfolio while adding exposure to major U.S. companies.

6. Best for Achieving Growth Through the Sustainable Economy: Pax Global Opportunities (PAXGX)

With $131.7 million in assets under management, PAXGX is a good option for gaining exposure to global markets. This fund has no exposure to fossil fuels. The focus is on a sustainable economy.

There is a global trend to seek a better way of doing business. Instead of using resources, companies that have adopted the sustainable economy model replenish the resources they use or benefit the environment and people in other ways. It’s a cyclical model that achieves sustainable growth.

Over 80% of the stocks included in this fund are from companies that will benefit from the sustainable economy according to financial advisers. The downside of this fund is that the expense ratio exceeds 1%, which will translate into higher fees compared to the other funds from this list.

PAXGX is a great investment for those seeking long-term growth and who have good risk tolerance. It’s a diverse fund that will help you gain exposure to markets outside of the U.S.

However, because the sustainable economy is still a new concept, it might be more volatile than other products.

7. Best for Exposure to Clean Energy: Invesco WilderHill Clean Energy ETF (PBW)

A lot of fossil fuel free funds filter companies that produce or use fossil fuels. PBW takes a different approach by actively seeking exposure to companies that offer an alternative to fossil fuels with clean energy.

This fund tracks the WilderHill Clean Energy Index. It gives you exposure to different U.S. stocks from companies that produce clean energy. There is a mix of medium and large-cap stocks. You’ll find stocks from companies that produce lithium or develop electric cars to cite a few examples.

We recommend PBW because it gives you exposure to clean energy, but it also achieves a high level of diversification. The energy sector represents 2.72% of the fund.

Utility stocks represent close to 6%, and IT companies make up 17% of the mix. You’ll also find that 41% of the fund comes from investments in industrial companies.

There is a team of advisors who rebalance the fund quarterly. These percentages will likely change based on how these different sectors perform.

Rebalancing the fund quarterly is a plus since it makes the fund more reactive to market changes.

See Related: Best Green Ammonia Stocks to Invest in Today

8. Best for Global Exposure to Clean Energy: Clean energy global iShares Global Clean Energy ETF (ICLN)

The PBW fund we discussed above is a good way of gaining exposure to the clean energy market in the U.S. ICLN achieves a similar purpose, but with a global focus.

This fund gives you exposure to companies that produce solar and wind power. It also includes stocks from companies that develop the technologies that support the switch to cleaner forms of energy.

ICLN is a good addition to your portfolio if you’re looking for a diversified fund. You’ll get exposure to companies located in different countries that focus on clean energy. There is a huge potential for clean energy around the globe, and you’ll get exposure to this growing market.

The downside of ICLN is that the methodology used to select stocks changed in April 2021. It seems that the new criteria the management team uses aren’t as strict as they used to be. There is still a focus on alternatives to fossil fuels and companies with good ESG practices, but recent additions to the fund might not be as sustainable as previous entries.

9. Best for Mid-Cap Investments: AMG Managers Fairpointe ESG Equity (AFPTX)

This fund focuses on mid-cap U.S. stocks. Stocks account for 95% of the fund and 93% of the companies the fund invests in are in the U.S. You’ll get exposure to a few companies in Canada and in the U.K.

It’s a diverse fund with a focus on companies with outstanding ESG practices, including not using fossil fuels. You’ll find stocks from companies in sectors like healthcare, IT, construction, semiconductors, consumer products, and more.

We recommend this fund because of the focus on mid-cap companies. Generally, these companies tend to be more reactive and adapt to change faster than most large-cap companies. They also have a higher potential for growth without the same risk level as small-cap investments.

This fund has a lower Morningstar compared to other ETFs. It has a rating of three stars. However, it’s still a good way to diversify your portfolio by adding exposure to mid-cap stocks, especially if you would like to invest more in the healthcare sector.

See Related: Costco Wholesale Corporation ESG Profile (COST): Is It Sustainable?

10. Best for Sustainability and Diversity: Vanguard U.S. Stock ETF (ESGV)

ESGV tracks the performance of the FTSE US All Cap Choice Index. It’s a mix of U.S. stocks from over 1,500 companies. You’ll find large, mid, and small-cap stocks among the $5.17 billion in assets under management.

This fund stands out thanks to its performance. It’s a great option for investors looking to build a responsible portfolio with diversified exposure to the U.S. market.

Vanguard built this fund by using a thorough ESG criterion. However, screening goes further than the usual ESG standards fund managers look at.

This fund excludes stocks from companies in problematic industries, including fossil fuels. The fund managers also exclude companies involved in weapons, gambling, adult entertainment, tobacco, or nuclear power. However, fossil fuels still represent 0.85% of the fund.

This fund also avoids investing in companies with human rights violations. The environmental standards set by the UN are another criteria the management team uses to select new stocks to add to the fund. ESGV also looks at diversity and excludes businesses that don’t have diverse workplaces.

Overall, ESGV is a great investment with low management fees. You’ll get exposure to a wide range of successful businesses with good ESG practices, and the fund has a solid historical performance.

See Related: Best Vanguard ESG Funds

11. Best for Gaining Exposure to the Asian Market: SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX)

EEMX is a fund that tracks a portion of the MSCI Emerging Market Index. Investing in a fund that tracks this index is a smart move if you want to gain exposure to the Asian market.

The MSCI Emerging Market Index reflects the economies of 27 different emerging countries. There is a focus on China, Taiwan, and South Korea through investments in sectors like IT, finances, communication, consumer products, and materials.

The problem with this index is that it also includes investment in fossil fuels. The good news is that there is an effort to divest from these stocks. The management team has been gradually restructuring the index to remove stocks with exposure to fossil fuels.

EEMX tracks a portion of this index that focuses on 23 different emerging countries. It excludes investments in coal, oil, and natural gas.

However, you can gain exposure to sectors like metal and mining. It’s often difficult to find funds that give you exposure to these sectors while excluding fossil fuel investments.

EEMX has a medium resiliency rating, which means that volatility is possible. However, it’s a good option if you want to invest in medium and large companies in different emerging markets while benefiting from a low expense ratio. Plus, you can gain exposure to the Asian market and to sectors like metal and mining without investing in fossil fuels.

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