These socially responsible ETFs cater to ESG investors.
Investors around the world are embracing strategies that align with their personal values as well as their pocketbooks. The clearest evidence of this is the rise of exchange-traded funds with an expressed desire to filter investments based on environmental, social and corporate governance characteristics — or so-called “ESG” qualities. Last year, ESG ETF assets surpassed $190 billion and accounted for almost 13% of global ETF asset growth, and that pace has not slowed down with a projected footprint of $53 trillion by 2025, according to Bloomberg. So what are the leading funds capturing investors’ interest right now? Here are seven socially responsible ESG ETFs to consider. All of them boast a few billion dollars under management.
iShares ESG Aware MSCI EM ETF (ticker: ESGE)
Quite the alphabet soup, this iShares fund makes more sense when you spell out the acronyms. In plain English, it’s an ESG-aware fund benchmarked to an MSCI index of emerging-market stocks. Emerging markets obviously hold a lot of promise because of their growth potential, but they also can be home to business practices that many Western investors would frown upon. This ESG-focused fund has a clear EM flavor, with about 350 total positions. Allocations include 35% of assets in China, 13% in South Korea and 10% in India. The big difference is that this growth-oriented international fund doesn’t require investors to sideline their morals. That unique and in-demand approach has caused this iShares fund to grow rapidly in recent years to an impressive $8 billion in assets under management.
iShares ESG MSCI EAFE ETF (ESGD)
Another solid option for international investors looking for socially responsible ETFs is this sister iShares fund that’s focused on EAFE markets — that is, Europe, Asia and the Far East. While you won’t get exposure to companies in the U.S. and Canada, you do get access to developed markets to supplement the EM approach of the prior iShares fund. There’s a diverse lineup of some 500 or so companies across geographies and sectors, including Swiss consumer giant Nestle, French consumer giant LVMH and Japanese automaker Toyota Motor Corp. (TM) at the top of the list. With nearly $6 billion in assets under management, this global ESG fund is the go-to option for those looking for exposure outside the U.S.
iShares Global Clean Energy ETF (ICLN)
Another iShares fund tops this list of leading ESG funds, though that acronym isn’t expressly mentioned in the title. Still, it’s hard to argue that anyone concerned about climate change or carbon emissions would overlook ICLN as one of the most important ways to invest with environmental principles in mind. With about $6 billion in assets under management, this fund is a liquid and established way for investors to play top names in the space, including Danish turbine giant Vestas Wind Systems and California-based solar energy company Enphase Energy (ENPH) among its 80 or so holdings.
Vanguard ESG U.S. Stock ETF (ESGV)
At about $5 billion in total assets under management, this socially responsible ETF from Vanguard is not as large as some of the prior funds when it comes to cash but is among the most diversified when it comes to total holdings. Around 1,500 total components make up this fund, and as the name implies, they are all U.S.-based corporations. Now, you may wonder how that many stocks — including the usual blue-chip brands like JPMorgan Chase & Co. (JPM) and UnitedHealth Group Inc. (UNH) — can have such a positive impact on the world. The answer is that this is just an “exclusionary” fund, meaning it cuts out the worst based on rankings for ESG criteria and presumes the rest are above board. That’s not perhaps as strict as other funds, but it certainly gives you more peace of mind than simply buying everything in the name of diversification.
Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)
Another substantial U.S.-based ESG fund, this offering from lesser-known asset manager Xtrackers and asset manager DWS tallies a total of nearly $4 billion in assets to go toe-to-toe with the big names out there. Comprised of a focused list of about 280 securities at present, the ETF’s top holdings include megacap tech stocks Microsoft Corp. (MSFT) and Google parent company Alphabet (GOOG, GOOGL), among others. About 28% of the fund is in tech, but it diversifies nicely after that with the No. 2 sector being health care at 14%. Energy stocks aren’t very well represented as a group, thanks to the omission of Big Oil, but otherwise this is a nicely diversified fund that isn’t as broad as the prior Vanguard ESG offering.
iShares MSCI KLD 400 Social ETF (DSI)
At more than $3 billion in assets, another iShares fund pops up here as yet another way to invest in domestic stocks with an eye toward environmental, social and corporate governance criteria. DSI is comprised of about 400 large U.S. companies — pretty much a kind of S&P 500 index with the 100 stocks that rank worst on social criteria being excluded from the lineup. Unfortunately, though it has more total stocks than the prior Xtrackers fund, it’s even more biased toward tech with 33% of assets in the sector and a hefty 14% or so in the twosome of MSFT and GOOG alone. Electric vehicle maker Tesla (TSLA) and payments giant PayPal Holdings (PYPL) are also among the fund’s top holdings.
iShares MSCI USA ESG Select ETF (SUSA)
This socially responsible ETF is, as the name implies, one of the most selective that iShares has to offer right now — and is growing fast in popularity as a result. With only 200 or so holdings in SUSA’s portfolio, investors are not simply getting a simplistic fund that excludes a handful of the bad actors that engage in fossil fuel or firearms production. Instead, the prospectus claims this ESG ETF only backs stocks with “leading environmental, social, and governance practices.” You might be surprised to find some names up here, such as home improvement company Home Depot Inc. (HD) and credit card giant American Express Co. (AXP). But that simply means you can be confident you’ll still get exposure to some traditionally popular domestic stocks without sacrificing your principles.
Seven socially responsible ETFs to buy now:
— iShares ESG Aware MSCI EM ETF (ESGE)
— iShares ESG MSCI EAFE ETF (ESGD)
— iShares Global Clean Energy ETF (ICLN)
— Vanguard ESG U.S. Stock ETF (ESGV)
— Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)
— iShares MSCI KLD 400 Social ETF (DSI)
— iShares MSCI USA ESG Select ETF (SUSA)
More from U.S. News
Update 07/21/21: This story was published at an earlier date and has been updated with new information.