15 ESG Funds That Are Savvy and Sustainable Investments

Are you among the millions who want to ensure you are investing your hard-earned money in companies building a sustainable future? Environmental, social, and governance (ESG) conscious investments denote a standard of examining the underlying companies to ensure their corporate policies align with these hot topic issues.

Because there are no commonly agreed upon or universal ESG standards, not all ESG funds are created equal. Like most megatrends, financial institutions and investment management companies have jumped on board to brand their index funds with an ESG insignia.

However many individuals are surprised to learn that the ESG funds they invest in allocate part of their portfolios into names such as ExxonMobil or Chevron. This disparity with an investor’s expectation can occur because a fund manager or index provider exercises discretion on ESG criteria guidelines.

Read on if you need clarification on ESG funds or which funds you should invest in. We’ll break down everything you need to know about an ESG fund and how it works and provide a list of the best ESG funds and why we like them.

What Are ESG Mutual Funds and ETFs?

ESG stands for Environmental, Social, Governance – but what does that really mean?

Environmental Investing

Environmental criteria consider how well a company aims to minimize its carbon footprint and climate change. Even companies such as factories, oil producers, and airlines, whose companies damage the environment, can still be considered positive environmental investments if they significantly reduce their practices or offset their carbon emissions.

Social Investing

Social criteria include examining the company’s relationships within the economic ecosystem they impact. Specific relationships include clients, employees, advertisers, suppliers, partners, communities, and local governments. Other factors also regard the well-being and support of their partners through volunteer work, support systems, charitable donations, social justice, diversity, and anti-discrimination.

Governance Investing

Governance investing focuses on management, leadership, stockholders, audits, risk management, and internal control issues. The most important criteria often include holding management and executives accountable for their actions. Furthermore, companies should not appoint unethical board members or make political contributions to sway governmental policy.

Best ESG Funds to Invest In

Think of ESG funds are funds comprised of companies that adhere to environmental, social, and governing principles and responsibilities. When you invest in an ESG fund, you’re investing in several companies that address these pressing issues.

How Do You Want Your Money to Impact the World? It would help to consider how you want your money to impact the world. Investing in an ESG fund aims to put your money into companies that operate responsibly and ethically based on your values.

Now that you know what ESG funds are and why they are important, let’s break down our top ESG funds in detail. Each of these funds could be a particularly worthwhile investment, but it’s up to you to determine where you want to put your money.

1. Vanguard FTSE USA All Cap Index ETF (ESGV)

The Vanguard FTSE USA All Cap Index exchange-traded fund (ETF) is our top pick for an all-around ESG ETF. The Financial Times Stock Exchange Group (FTSE) index is very comprehensive and includes about 1500 different companies. All businesses in this ETF are U.S.-listed companies spanning large-cap, mid-cap, and small-cap market sizes.

2. Fidelity U.S. Sustainability Index Fund (FITLX)

Our top mutual fund is the Fidelity US Sustainability Index Fund (FITLX), a passive index mutual fund tracking the MSCI USA ESG Leaders Index. That index includes about 300 companies with very high ESG ratings in their sectors. You can rest assured that no “negative” companies will be in this fund, as any companies heavily involved in gambling, weapons, alcohol, tobacco, and civilian firearms are automatically ineligible for inclusion.

3. Vanguard FTSE Social Index Fund Admiral (VFTAX)

The Vanguard FTSE Social Index mutual fund is a low-cost, passive index ESG fund that manages over $3 billion worth of assets. Vanguards flagship ESG mutual fund tracks the FTSE 4 Good U.S. Select Index, comprising approximately 500 individual companies.

Popular holdings in this fund include but are not limited to Microsoft, Apple, and Amazon. Investors enjoy about 1.2% yearly dividends, aligning with similarly composed ESG funds.

4. Xtrackers S&P 500 ESG Index ETF (SNPE)

The Xtrackers S&P 500 ESG Index ETF is another smart passive index ETF option. SNPE tracks the Standard & Poors (S&P) 500 ESG index, which is very similar to their flagship S&P 500 index, with several industries and companies removed. The result is a large-cap index with approximately 300 companies and a similar composition to the S&P 500.

5. SPDR S&P 500 ESG Index ETF (EFIV)

State Street Global Advisor’s ESG ETF, EFIV, follows the same index as the previously mentioned fund, SNPE. It would be unfair not to include this fund as it’s almost identical to SNPE in fund holding and composition and even mirrors the annual management fee of 0.10%.

6. iShares MSCI USA Extended ESG Focus Index ETF (ESGU)

Blackrock’s iShares brand is no stranger to passive index ETFs, as they are the largest ETF provider but not the leader in ESG funds, as ranked by our metrics.

7. iShares S&P Global Clean Energy Index ETF (ICLN)

iShare’s IGLN ETF includes about 100 holdings focusing on U.S. and international clean energy companies. This fund is primarily an environmental-focused impact fund, mainly focusing on mid-cap-sized companies.

8. Parnassus Core Equity Fund (PRBLX)

Parnassus is a less well-known asset manager who proclaims they have integrated environmental, social, and governance factors into their investment process since 1984.

9. iShares MSCI Emerging Markets ETF (ESGE)

iShares’s ESGE ETF includes approximately 300 companies focusing on emerging markets and most heavily invested in China, Korea, Taiwan, and India. Top holdings include international juggernauts such as Alibaba, Tencent, Samsung, and Taiwan Semiconductor.

This fund is distinct in that its holdings are based outside the U.S. in more emerging economies. Although many of the top holdings are large-cap companies, expect increased volatility due to the geographic instabilities of the companies’ regulators.

10. Nuveen ESG Mid-Cap Value ETF (NUMV)

Nuveen’s mid-cap value ETF, NUMV, boasts about 100 names and passively tracks the TIAA ESG USA Mid-Cap Value Index. The management fee on this ETF is a modest 0.30% annual fee and the fund targets less volatile value companies within the U.S. market.

Nuveen’s ETF offers a distinctly diverse group of holdings compared to ESG competitors, with top sectors comprised of real estate, financials, industrial, and utility companies. Whereas some ESG indexes tend to cut more value holdings in mature industries, NUMV targets these businesses with lower volatility, making it an interesting addition for investors worried about losing exposure to value companies.  

11. iShares MSCI USA Select Social Index ETF (SUSA)

iShare’s SUSA ETF includes 175 companies focusing on the major U.S. market but more concentrated among fewer names. The MSCI USA Select Social Index focuses on a mix of exposure to large-cap and mid-cap ESG companies.

Top holdings include big technology names such as Microsoft, Apple, Nvidia, Coca-Cola, and Tesla. Some energy-related companies, such as Halliburton, are included in the fund, but most large energy and alcohol companies are nonexistent from this iShares’s ETF.

12. First Trust ISE Global Wind Energy Index Fund (FAN)

FAN is an ESG ETF fund managed by First Trust. This ETF focuses on tracking the Clean Edge Global Wind Energy Index, exposing your portfolio to support companies that focus on developing and providing renewable wind energy to consumers.

This ETF fund was created in 2008 and now has over $500 million in assets under its managers’ oversight. There are plenty of quality holdings included in this fund, like North and Power, Vestas Wind Systems, and Siemens Gamesa Renewable Energy: all power generation or wind power plants and manufacturing companies.

13. First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID)

The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund or GRID is an ESG ETF issued by First Trust, similar to FAN. However, this fund emphasizes renewable electrical energy use. It funds companies operating within and innovating within the electrical industry, such as companies that create new electric grid technology and energy storage devices, like solar batteries.

Like some of the deficiencies in FAN, GRID has a high annual management fee of 0.70% and is also not highly liquid. Therefore, this ETF is only recommended for long-term investors looking specifically for diversified exposure in renewable electricity companies.

14. Vert Global Sustainable Real Estate Fund (VGSRX)

The Vert Global Sustainable Real Estate Fund is a different ESG fund, which is actively managed and focuses on real estate investment trusts (REITs) or other companies the fund advisor considers sustainable. The fund currently holds about 150 names but is subject to change, as with any actively managed fund.

15. Shelton Green Alpha Fund (NEXTX)

The NEXTX active mutual fund is a reasonable choice for any long-term growth-oriented investor. That’s because it only includes companies that are checked for positive environmental influences and asset appreciation; as a result, the majority of holdings are from well-known companies that have already received accolades for sustainability, like Tesla and IBM. Other top holdings include First Solar, Vestas Wind Systems, IMB, and Deere & Co.

The NEXTX mutual fund also thoroughly analyzes global and market fluctuations and circumstances to minimize risk for all investors. If there’s ever a market shake-up, you can rest assured that the NEXTX fund will keep your portfolio relatively stable.

Conclusion

ESG funds represent responsible and moral ways to invest your money wisely and ethically simultaneously. Not all ESG funds are equal and be aware of the different inclusion criteria managers follow to determine or include their investments. Diversifying in funds is always a smart way to mitigate specific company risks and is our recommendation for most types of investors.

Consider investing in one or more of the above ESG funds today and know you prioritize profits and a sustainable and fair future.

View the Complete Analysis on ESG funds: ESG Fund Full Ananalsis [2023]