The best sustainable ETFs to have in your portfolio

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Updated: 14 September 2020

The Best Sustainable ETFs

With so many investors keen to get involved in ethical trading, it’s not surprising that numerous new sustainable ETFs have sprung up in recent years.

ETFs pull together a basket of assets from companies they have already screened to ensure they are following best practices, making it easier for ethical traders to invest with peace of mind.
With ESG-screened ETFs, investors can now invest with a peace of mind, as the stocks are ensured to meet ESG standards and only for companies that are environmentally-friendly, socially responsible and practicing good business practices.

To give you some ideas, we’ve put together a list of some of the best sustainable ETFs available to trade on the market.

Best Sustainable ETFs

List of Best Sustainable ETFs

Symbol
ETF Name
Exposure to Sustainable Impact Solutions (%)
CRBN
ISHARES MSCI ACWI LOW CARBON TARGET ETF
6.41
BGRN
ISHARES GLOBAL GREEN BOND ETF
6.01
VEGN
THE U.S. VEGAN CLIMATE ETF
4.80
DSI
ISHARES MSCI KLD 400 SOCIAL ETF
93
SUSA
ISHARES MSCI USA ESG SELECT ETF
11.08
SPYX
SPDR S&P 500 FOSSIL FUEL RESERVES FREE ETF
6.14
SHE
SPDR SSGA GENDER DIVERSITY INDEX ETF
7.39

ISHARES MSCI ACWI LOW CARBON TARGET ETF

This fund, with the ticker symbol CRBN, does exactly what the name suggests, and tracks low carbon companies to allow environmentally-concerned clients to ensure they are investing in companies with a commitment to lowering carbon emissions and reducing their overall carbon footprint.

While there are numerous companies aiming for a net-zero carbon footprint, the fund is not that ambitious, aiming to simply include companies less dependent on fossil fuels, with lower carbon exposure than average.

The low-cost fund focuses on environmental impact and does not claim to track companies on all ESG criteria. It has over 1,200 holdings, in the USA and abroad, with some big names, including Microsoft, Apple, and Amazon.
Current asset under management is $455.56m with an expense ratio of 20%.

ISHARES GLOBAL GREEN BOND ETF

The iShares Global Green Bond ETF, with the ticker symbol BGRN, only includes bonds that meet MSCI's Green Bond Principles. In short, this means that the bonds must be used to fund projects related to energy efficiency, climate adaption, water sustainability, pollution control, green building, and other environmental issues.

There are also independent procedures that must be used by the bond issuers to evaluate and select environmental projects and to accurately report the impact these projects have had. This relatively new fund showed returns of 1.1% in 2018, with an expense ratio of 0.20% and around 81.75m in assets under management.

THE U.S. VEGAN CLIMATE ETF

The first-ever ‘vegan ETF’ hit the market in September 2019, hailed as perhaps the most specific ETF ever launched. Trading on the New York Stock Exchange, under the ticker symbol VEGN, the fund is provided by European-based Beyond Advisors IC.

The fund’s prospectus states that the aim is to ‘address the concerns of vegans, animal lovers and environmentalists by avoiding investments in companies whose activities directly contribute to animal suffering, destruction of the natural environment and climate change’.

While it is early to predict how the fund will perform long-term, it traded over $4m on its first day, showed a 0.36% growth in its first month, and, less than two months after inception was showing growth of 0.62%.

ISHARES MSCI KLD 400 SOCIAL ETF

This sustainable ETF was first established in 2006 and tracks an index of various and diverse companies, carefully screened on environmental, social and governance characteristics. The fund holds 400 positions spread across various sectors, including technology, healthcare, energy and utilities.

Stocks include Microsoft, Facebook, Verizon, Visa, Home Depot, Procter & Gamble, and Alphabet. The fund has around $2.19b in assets under management, with an expense ratio of 25%.

Best Sustainable ETFs

ISHARES MSCI USA ESG SELECT ETF

This is another iShares fund, with access to over 100 large and mid-cap stocks from US companies that meet environmental, social and governance criteria.

This fund excludes all tobacco companies and includes organisations from a diverse range of sectors, including consumer goods, healthcare and financial services. Holdings include Microsoft, Google, Apple, EcoLab, Kelloggs, Pepsi and Accenture.

The fund has an asset under management of $1.46b and an expense ratio of 25%.

SPDR S&P 500 FOSSIL FUEL RESERVES FREE ETF

With the ticker symbol SPYX, this is one of the newer funds on the market, in operation since late 2015. This fund has a specific aim and strategy.

It tracks a subset of the S&P 500 Index, removing companies that own fossil fuel reserves, meaning crude oil, natural gas and thermal coal, and effectively creating a S&P 500 Fossil Fuel Free Index, with the aim of replicating roughly the same returns as the full index.

This means the fund has 486 holdings and has certainly had success, with shares returning around 15% in the first three years of operation. It currently has $643.50m in assets under management, with an expense ratio of 25%.

The Best Sustainable ETFs

SPDR SSGA GENDER DIVERSITY INDEX ETF

With the appropriate ticker symbol of SHE, this fund from State Street Global Advisors tracks the performance of companies that are working towards gender equality and actively encouraging gender diversity on their boards of directors, and within their senior management teams.

This ETF has around 170 positions, with stocks from diverse companies, all of which have a commitment to gender equality, and multiple women on their boards.

Stocks include Coca Cola, Johnson & Johnson, Home Depot, MasterCard and PepsiCo, a company that currently has a female chairperson. At the time of writing, the fund has a total assets under management of $132.34m, with a gross expense ratio of 20%.

It certainly seems safe to assume that sustainable ETFs of all kinds will continue to emerge and grow, and that the issues supported by each one will become ever more specific. So where do you find the right sustainable ETFs for you?

How To Choose The Best Sustainable ETFs?

There are a few factors that you need to consider in choosing the best sustainable ETFs to invest in as below.

Level of Assets

The best ETF should have a minimum level of assets, a common threshold of at least $10 million. An ETF with assets below this minimum is likely to have a limited degree of investor interest.

Trading Activity

You need to take into account a sufficient volume of trades involved on a daily basis for the ETF. Trading volume is an excellent indicator of liquidity, regardless of the asset class.

Underlying Assets

Additionally, consider the underlying index or asset class of the ETFs before deciding to invest in them. From the point of view of diversification, it may be preferable to invest in an ETF that is based on a broad, widely followed index.

Why Trade ETFs?

Exchange-traded funds (ETFs) take the benefits of mutual fund investing to the next level. Some of the advantages of ETFs are as below.

Lower Cost

Since you can trade ETFs like stock, you can buy a diversified portfolio with the same low commission. Also, ETFs typically have lower expense ratios than mutual funds.

Diversification

The are a variety of ETFs, covering all major indices, sectors, industries, sizes, strategies, international (i.e. developed, emerging, and frontier markets), specific countries, and even exotic ETFs (commodities, short or bear funds, and leveraged funds).

Liquidity

ETFs trade on a market exchange so they can be traded (intraday) anytime stocks trade, not just at the end of the day. This can be an important benefit when volatility is high.

Tax- Efficient

Since most ETFs are not actively managed, but are programmed to follow a specific index, they may not have high capital gains and income that are required to be passed on to owners each year. This means investors have more control over when they incur taxes.

Conclusion

The low-cost, transparent nature of ETFs make them a vehicle of choice for diversification. They have an inexpensive entry point and it’s easy to see the kinds of assets you are buying. However, when you move into leveraged and inverse ETFs you gain more risk. The rewards and risks are multiplied.

Essentially, the market for ethical or environmental, social and governance (ESG) exchange-traded funds (ETFs) has grown exponentially in recent years, attracting investors who want to align their money with opportunities that are consistent with their core values and beliefs.

Many, though not all, brokers offer trading in ETFs, and among those who do, not all brokers will offer all ETFs, or even have access to all exchanges. Some brokers that do offer a range of ESG ETFs include IG, Fidelity, and DEGIRO. You can search the asset list of any online broker, using the name of a specific fund, or its ticker symbol.

Want to diversify your ethical portfolio? You might also be interested in our guides to socially responsible companies and ethical stocks.

Further Reading

FAQs

Yes, eToro is good to trade ETFs with as the platform offers zero-commission, and charges low fees and spreads.

  • ProShares Long Online/Short Stores ETF (CLIX)
  • WisdomTree Cloud Computing Fund (WCLD)
  • ARK Genomic Revolution ETF (ARKG)

The best ETF to invest in 2020 is SPDR S&P 500 ETF (SPY)

CSR often looks backward and reflects on what a company has done to contribute to society. Corporate sustainability looks forward and develops a sustainable strategy for the future

ESG screening is made to assess a company based on environmental, social, and governance (ESG) criteria, investors look at a broad range of behaviors.

ESG funds are portfolios of equities and/or bonds for which environmental, social and governance factors have been integrated into the investment process.

Sustainability is a blanket term—a catch-all for any company’s efforts to “do better.” ESG, on the other hand, spotlights three specific pillars that are crucial to today’s business managers and investors

A score of 30 or lower means that the company scores at least two standard deviations below average in its peer group. At least half of a portfolio’s assets under management (AUM) must have a company ESG score for the portfolio to obtain a sustainability score.