Socially responsible funds play an increasingly important role for investors, as it’s more and more difficult to put your money into the stock market without acknowledging the world we live in. Whether it’s the dollars-and-cents impact of global warming to the real social issues like wealth inequality and gender pay gaps, buying and selling often cannot take place without an investor facing some kind of ethical dilemma.
[Sign up for stock news with our Invested newsletter.]
Take the macroeconomic trends of 2022 as an example. Defense stocks had a great year thanks to the Russian invasion, but do you really want to profit off of war? How about the related surge for the energy sector, as fossil fuel companies went on a tear despite the fact that we’re perpetually setting new highs for global temperatures?
There are no easy answers when it comes to how to invest in a world like this. But thankfully, there are a group of socially responsible funds out there that try to focus your cash behind some of the better companies and leave out some of the bad actors. It’s not perfect, of course, and the goal of most investors remains to make money and not just feel good about their portfolio.
That said, the following investments are well-established and diversified ways to invest with environmental, social and governance priorities in mind — or ESG for short.
| Fund | Assets | Expense Ratio |
| iShares ESG Aware MSCI USA ETF (ticker: ESGU) | $12.8 billion | 0.15% |
| Vanguard ESG U.S. Stock ETF (ESGV) | $6.8 billion | 0.09% |
| Nuveen ESG Large-Cap Growth ETF (NULG) | $1.3 billion | 0.26% |
| Nuveen ESG Large-Cap Value ETF (NULV) | $1.6 billion | 0.26% |
| iShares ESG Aware MSCI EAFE ETF (ESGD) | $7.3 billion | 0.20% |
| iShares Global Clean Energy ETF (ICLN) | $3.5 billion | 0.41% |
| Parnassus Core Equity Fund (PRBLX) | $27.4 billion | 0.82% |
iShares ESG Aware MSCI USA ETF (ESGU)
Assets under management: $12.8 billion Expense ratio: 0.15%, or $15 annually on every $10,000 invested
The iShares ESG Aware MSCI USA ETF is the largest and most established fund in this space, and also one of the most affordable. That makes it the natural starting point for most investors. Of course, it’s not particularly sophisticated with about 300 total holdings that include most of the same names you’ll find in the typical large cap ETF, including Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Amazon.com Inc. (AMZN) as its top three holdings. These firms aren’t exactly focused on making the world a better place through their normal operations, and in many ways are just traditional tech stocks. But they do rank highly when it comes to ESG criteria on a corporate level, and that’s what ESGU looks for in its portfolio.
Vanguard ESG U.S. Stock ETF (ESGV)
Assets under management: $6.8 billion Expense ratio: 0.09%
Another great option, this time from mega-manager Vanguard, is ESGV. It is well established, with billions in assets and a slightly smaller expense ratio. As for its portfolio, it has a whopping 1,500 or so total components. These are weighted by value, however, so the largest companies like the aforementioned Big Tech giants that dominate ESGU also make a strong showing here. And once again, if you’re looking to only invest in companies proactively making the planet safer and greener, you may not be impressed by the listing of components. But if you just want to make sure you’re not putting money behind bad actors on Wall Street, this fund offers a very diversified way to follow that approach.
Nuveen ESG Large-Cap Growth ETF (NULG)
Assets under management: $1.3 billion Expense ratio: 0.26%
Getting more selective instead of more inclusive, NULG offers a focused list of about 100 total stocks that it considers the best when it comes to ESG criteria. What makes this even more different than the prior socially responsible funds is the fact that this is also a growth-oriented option that seeks companies with strong earnings and sales trends. Once again, you’ll find Big Tech leading the charge here, with roughly 40% of the total components in the sector. If you want an ESG focus but also want to ensure your portfolio has a growth bias, then NULG is a great option.
[7 Best Water Stocks and ETFs to Buy in 2023]
Nuveen ESG Large-Cap Value ETF (NULV)
Assets under management: $1.6 billion Expense ratio: 0.26%
The natural complement to the prior fund is this value-focused option. Among socially responsible funds, it’s pretty easy to find an investment that gives you exposure to high-ranking Silicon Valley firms. But NULV ensures you’re looking beyond technology stocks and instead picks the top 100 value investments with the best ESG criteria. Tech still ranks highly at more than 18% of the portfolio, but is closely followed by health care (17%) and financial services (16%) to offer a more diversified swath of large-cap stocks with high-ranking ESG ratings.
iShares ESG Aware MSCI EAFE ETF (ESGD)
Assets under management: $7.3 billion Expense ratio: 0.20%
Looking overseas, this EAFE ETF holds companies headquartered in Europe, Australasia and the Far East. Many of these are multinational corporations you will recognize like Nestle SA (NESN.CH) or French luxury goods giant LVMH Moet Hennessy Louis Vitton (MC.FR) that have strong rankings when it comes to environmental, social impact, and corporate governance criteria. For investors interested in international diversification or those who think that perhaps our peers in Europe or Japan may be a bit more progressive on ESG than we are here in the U.S., ESGD is a well-respected option. The fund is focused on developed markets, with Japan the top region with 23% of the portfolio followed by both the U.K. and France at 15% each.
iShares Global Clean Energy ETF (ICLN)
Assets under management: $3.5 billion Expense ratio: 0.41%
Getting more directly involved with ESG issues is this iShares fund that seeks to only hold companies involved with clean energy solutions. This fund may be a bit more expensive when it comes to the fee structure and have a bit less cash under management, but it is definitely popular and established. You won’t find the Silicon Valley companies from the prior funds this time, but you may find a few companies you didn’t expect, such as utilities like New York City-area electricity provider Consolidated Edison Inc. (ED), which has invested in renewables to supplement its traditional power biz. You’ll also have international exposure, with roughly half of the portfolio headquartered overseas. But if you want to play the global clean energy landscape instead of just corporations that are ranked highly on their corporate operations, ICLN is the leading socially responsible fund out there.
Parnassus Core Equity Fund (PRBLX)
Assets under management: $27.4 billion Expense ratio: 0.82%
It’s a great big world of ETFs out there, but socially responsible funds also exist in the realm of traditional mutual funds, too. In fact, the Parnassus Core Equity Fund has a very focused portfolio of just 40 total stocks, led by Microsoft and Google parent Alphabet Inc. (GOOG, GOOGL), that is designed to ensure you are invested in the most ESG-aware corporations in the U.S. Admittedly, it’s much more expensive than some of the other large-cap ESG ETFs on this list. There’s a $2,000 investment minimum, too. But it is incredibly well established, with the largest asset tally of the lot. For those interested in scale more than anything else, this Parnassus fund is definitely worth a look despite not being exchange-traded.
More from U.S. News
6 Facts to Know Before Investing in a Restaurant
7 Best Socially Responsible Funds originally appeared on usnews.com
Update 09/19/23: This story was published at an earlier date and has been updated with new information.
