Business meets social responsibility.
Socially responsible investing tries to match two concepts that are seemingly at odds: environmental and social conscience and publicly traded companies. That’s in jest, of course — numerous companies have made decided strides in hiring veterans, promoting diversity, becoming more ecologically sound and otherwise focusing on initiatives that somehow benefit humankind. But morality is subjective, so your definition of a socially conscious fund might not line up with someone else’s. Luckily, the world of exchange-traded funds offers several options that invest in companies based on different sets of responsibility criteria.
iShares MSCI USA ESG Select ETF (KLD)
The KLD invests in large- and mid-cap U.S. companies that rank well in environmental, social and governance (or ESG) performance, which is broken down into five categories: environment, community and society, employees and supply chain, customers, and governance and ethics. It then assigns heavier weights to companies with better scores — in essence, the more socially conscious the company, the more sway it holds. It excludes companies involved in tobacco, alcohol and gambling, among others. The result is a 100-stock portfolio heavy in tech (25 percent) such as Microsoft Corp. (ticker: MSFT) and Apple (AAPL), plus health care (14 percent) and industrials (12 percent).
Expenses: 0.5 percent, or $50 per $10,000 invested annually
iShares MSCI EAFE ESG Optimized ETF (ESGD)
iShares’ ESGD is an international fund that’s similar to KLD in that it targets companies with high ESG scores, but it also factors in risk and return characteristics in selecting its holdings. This ETF covers Europe, Australia, Asia and the Far East, and holds companies such as Nestle, which has a target of operating with zero environmental impact by 2030. While Switzerland dominates the top-holding podium — Nestle, Roche Holding and Novartis (NVS) are the three largest weights — it’s only third in overall weight at 8.9 percent. Japanese stocks make up 23 percent of the fund, followed by the U.K. at 17.6 percent.
Expenses: 0.4 percent
NuShares ESG Small-Cap ETF (NUSC)
TIAA’s Nuveen division launched a five-fund suite of ESG-focused offerings under the NuShares brand back in December 2016 and the biggest draw so far has been the fund with the smallest focus. The NUSC is the only ESG fund on the market that has an explicitly small-cap strategy, and despite the socially responsible focus, it still sports a wide roster of 741 holdings with cloud communications specialist LogMeIn (LOGM) and water utility Aqua America (WTR) the largest weights at just 0.91 and 0.89 percent, respectively. That kind of breadth is important, as it protects you from the inherent volatility and collapse potential of small caps.
Expenses: 0.4 percent
SPDR SSGA Gender Diversity Index ETF (SHE)
While some fund providers outright admit that certain ESG strategies don’t fare better than traditional indices, gender diversity offers tangible results. State Street Global Advisers installed its “Fearless Girl” statue on Wall Street to push this idea, with CEO Ron O’Hanley pointing out that “certain research shows that companies with greater levels of gender diversity have had stronger financial performance.” The SHE ETF promotes this by holding companies that have high ratios of females in senior leadership positions, leading to top holdings like PepsiCo (PEP), helmed by Indra Nooyi, and Pfizer (PFE), where four women serve in executive positions, including Chief Medical Officer Freda C. Lewis-Hall.
Expenses: 0.2 percent
The Workplace Equality Portfolio ETF (EQLT)
The EQLT has less to do with diversity in the C-suite, and more to do with general principles and practices in hiring. Specifically, the fund screens for companies that “include mandatory language in a company’s equal employment opportunity statement prohibiting discrimination based on sexual orientation and gender identity, offering health benefits to same-sex partners or spouses of employees,” among other actions. This portfolio of 250 stocks is equally weighted, and currently features companies such as Sears Holdings Corp. (SHLD), which constantly records perfect scores on the HRC Foundation’s Corporate Equality Index, and Nordstrom (JWN), whose leadership has long been vocal about its support for the LGBT community.
Expenses: 0.75 percent
Etho Climate Leadership U.S. ETF (ETHO)
ETHO is the exchange-traded product based on Etho Capital’s flagship strategy, the Etho Climate Leadership Index — U.S. This fund is primarily concerned with the environmental aspect of ESG, investing in anywhere from 350 to 400 companies that boast the smallest carbon footprints in their industries. However, ETHO does filter out bad actors with poor ESG scores, and also knocks out industries such as tobacco, gambling and oil/coal/natural gas. The remaining portfolio is equally weighted, and currently features companies such as Extra Space Storage (EXR), Tesla (TSLA) and Zillow Group (Z), with none of them accounting for more than 0.3 percent of the ETF’s weight.
Expenses: 0.49 percent
Global X S&P 500 Catholic Values ETF (CATH)
The companies in Global X’s CATH ETF don’t have the pope’s stamp of approval, but they have the next best thing: they have business practices in line with the U.S. Conference of Catholic Bishops’ socially responsible investment guidelines. The CATH attempts to match the sector weightings of the Standard & Poor’s 500 index while including companies that “protect human life,” “reduce arms production” and “protect the environment.” As it turns out, it’s not a terribly exclusive filter, with the fund featuring many S&P 500 top holdings including Apple, Microsoft and Amazon.com (AMZN). However, General Electric Co. (GE) and Pfizer are noticeable omissions.
Expenses: 0.39 percent
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7 Socially Responsible ETFs for Investors of All Stripes originally appeared on usnews.com
