12 Best Emerging Markets ESG Funds (2024)

Emerging markets ESG are full of possibilities for investments. These markets are maturing, and when markets mature, there are large potential returns for early investors. Individual investments in the emerging ESG markets sector, on the other hand, can be difficult and risky.

There are numerous small-cap and penny stocks in the market with little or no track record of profitability. On the other hand, beginner investors are frequently drawn into these high-risk investments by promising quick profits.

What Are Emerging Markets Exchange Traded Funds?

Developing markets exchange-traded funds (ETFs) aggregate funds from big groups of investors and invest them in emerging market ESG ETF assets such as stocks and bonds.

Emerging Market ETF Types

Emerging market ETFs are divided into two categories:

1. Emerging Economies

Emerging economies are those that are experiencing rapid growth and are investment advisors.

While they are not yet fully developed economies, they are well on their way to becoming such, and the gap between emerging and developed economies is generally closing. As a result, publicly-traded enterprises in emerging economies have the potential to achieve significant growth.

China, Brazil, India, Taiwan, and South Korea are among the most attractive rising economies among investors.

2. Emerging Markets

Emerging industries are those that revolve around new items.

The COVID-19 pandemic provided one of the clearest examples of an emergent industry. As the pandemic spread worldwide, biotechnology businesses joined together with cleaning products, sanitizers, and personal protective equipment manufacturers to form the COVID-19 industry, which has seen rapid growth since the outbreak began.

See Related: Dollar General Corporation ESG Profile (DG): Is It Sustainable?

12 Best Emerging Market ESG Funds

1. Vanguard FTSE Social Index Fund Admiral

• $12.0 billion in assets under management
• 1.1 percent dividend yield
• On a $10,000 initial investment, expenses are 0.14 percent, or $14.

Vanguard is among the most affordable, socially responsible funds on the market, which at least partially explains its popularity. During the second half of 2020, the fund garnered about $3 billion in assets under management. In 2021, it was estimated to receive another $720 million or thereabouts.

The Vanguard FTSE, Social Index Fund, follows a passive strategy that tracks the FTSE4Good US Select Index, a market capitalization-weighted index that screens constituents for environmental, social, and governance (ESG) criteria. It also excludes businesses involved in human rights abuses, labor abuses, corruption, or harmful environmental issues.

See Related: Best ESG Target Date Funds

• $452.5 million in assets under management
• 1.0 percent dividend yield
• 0.49 percent in expenses

Do you want to know how ESG investing benefits emerging market countries? The portfolio of the Global Impact ETF is made up of enterprises from all over the world that operate in support of the United Nations’ Sustainable Development Goals. Clean energy, eradicating poverty and hunger, universal education, and halting global warming is among their 17 aims.

The percentage of revenue generated by activities connected to these themes is then used to weight their stocks.

The largest geographical positions in the ETF are in the United States and Japan. Industrials, healthcare companies, and consumer staples sectors account for 19% to 21% of SDG’s assets.

See Related: Corporate Governance: Reasons for Effective Management

3. Parnassus Core Equity Fund Investor

• $20.0 billion in assets under management
• 0.4 percent dividend yield
• 0.86 percent in expenses

Parnassus Investments has provided ESG impact-focused investment strategy to People’s United Advisors for over a decade.

This includes “High-quality investments with large moats, expanding relevancy, solid management teams with a long-term focus, stable financials,” according to Parnassus’ ESG study.

During the second half of 2020, its outstanding performance enabled it to amass moreover than $4 billion in assets. This year, it has added another $750 million.

See Related: Fiserv, Inc. ESG Profile (FISV): Is It Sustainable?

4. Parnassus Mid Cap Fund Investor

• $7.8 billion in assets under management
• 0.2 percent dividend yield
• 0.99 percent in expenses

The Kip 25 selection Parnassus Mid Cap Fund Investor (PARMX, $44.16) is another of the firm’s top-rated ESG mutual funds. This five-star, Silver-rated choice for ESG exposure to mid-cap stocks has been praised for its “skilled stock-pickers” and “disciplined, well-executed strategy.

The fund’s managers’ emphasis on downside protection has resulted in a fund that has fared better during the few pullbacks of the last decade while not always keeping up with the Russell MidCap Index during bull markets. During the turbulence of 2018, PARMX was roughly 2.5 percent ahead of the index.

Quality and valuation measures include competitive advantages, fund investment objectives, and screen companies. Manufacturers of cigarettes, alcohol, or firearms are also prohibited. PARMX will also avoid investing in firms that extract or produce fossil fuels and consider enterprises that use fossil fuel-based energy.

See Related: Best Climate Change Mutual Funds

• $16.5 billion in assets under management
• 1.2 percent dividend yield
• 0.15 percent in expenses

The MSCI USA Extended ESG Focus Index is tracked by the iShares ESG MSCI USA ETF (ESGU, $95.23), a passively managed ESG fund. This benchmark whittles down the MSCI USA Index of large and mid-cap American companies to “positive” ESG companies by removing tobacco companies, civilian weapons producers, and firms with “extremely severe business issues.”

For example, this could include waste production in the food business or data security in finance. A corporate governance evaluation is conducted on every company, regardless of industry.

See Related: Honeywell International Inc. ESG Profile (HON): Is It Sustainable?

• $7.3 billion in assets under management
• 1.3 percent dividend yield
• 0.25 percent expense

You can also invest properly in other parts of the world through an underlying fund such as this.

It follows the MSCI Emerging Markets Extended ESG Focus Index, which narrows the focus of the more comprehensive MSCI Emerging Markets index by excluding companies in the tobacco and firearms industries and those involved in “serious” issues to maximize exposure to companies with high ESG IVA ratings.

While higher than EGSU, fees are relatively reasonable, at only 0.25 percent each year.

• $5.4 billion in assets under management
• 1.6 percent dividend yield
• 0.20 percent in expenses

Everywhere investing involves risk. If you want worldwide diversification but don’t want to risk investing in emerging economies, the iShares ESG MSCI EAFE ETF (ESGD, $79.21) is a good fund index provider.

With roughly 10% mid-cap exposure, this primarily large-cap fund invests in established European, Australasian, and Far Eastern countries (EAFE). To arrive at a portfolio of around 480 equities, ESGD employs the same exclusions and optimizations as ESGU and ESGE.

This fund isn’t completely balanced in terms of sectors, but it does offer exposure to all 11 of them, with financials (17%) and industrials (16%) leading the way. Geographically, it’s also very top-heavy. Around 14% of the fund’s assets are invested in the stock markets of the United Kingdom, 11% of the fund’s assets are invested in the stock markets of France, and 9% of the fund’s assets are invested in the stock markets of Switzerland.

See Related: Costco Wholesale Corporation ESG Profile (COST): Is It Sustainable?

• $5.5 billion in assets under management
• 0.4 percent dividend yield
• 0.46 percent in expenses

Some investors may focus on certain ESG problems, such as clean energy. Consequently, benchmarks such as the S&P Global Clean Energy Index have been developed. This index selects 30 of the most significant clean energy businesses among the 11,000 equities included in the S&P Global Broad Market Index.

The world is experiencing a long-term trend in which solar and wind power output is increasing while coal and oil generation is declining. Since 2016, the S&P Global Clean Energy Index has tripled in value, while the Energy Select Sector Index (a traditional-energy index) has lost a third of its value.

Clean energy companies can be largely reliant on government subsidies and contracts, according to the prospectus. Political events and seasonal weather conditions might also affect future performance.

9. SPDR S&P 500 Fossil Fuel Reserves

• $1.0 billion in assets under management
• 1.3 percent dividend yield
• 0.20 percent in expenses

Excluding fossil fuels from your portfolio is another approach to investing with clean-energy ideas with iShares funds investment opportunities.

That’s what the SPDR S& P 500 Fossil Fuel Reserves Free ETF (SPYX, $102.97) offers, which invests in the S& P 500. That effectively eliminates a few energy companies, such as Exxon Mobil (XOM) or Chevron (CVX), leaving a group of 490 holdings.

For clean-energy supporters, this isn’t just a feel-good investment. Over the last three years, SPYX has outperformed the S& P 500 by more than a percentage point yearly. Since its launch in 2015, it has consistently excelled in the US big blend category.

See Related: Charter Communications, Inc. ESG Profile (CHTR): Is It Sustainable?

10. Pax Ellevate Global Women’s Leadership Fund

• $822.7 million in assets under management
• 1.0 percent dividend yield
• 0.80% of total expenses

With almost $820 million in assets under management, Pax Ellevate Global Women’s Leadership Fund (PXWEX, $33.06) is proof that there is substantial investor interest in corporate gender diversity.

The Impax Global Women’s Leadership Index is linked to the fund. The firm’s in-house Gender Analytics Team examines 1,600 worldwide corporations for criteria such as female presence in management and pays equity to generate the index.

11. Nuveen ESG Large-Cap Value ETF

• $895.6 million in assets under management
• 1.3 percent dividend yield
• 0.35 percent in expenses

You may reduce the risk of grabbing the blade by combining value with ESG firms, often higher-quality and better suited to weather the storm in market stress.

Nuveen ESG Large-Cap Value ETF (NULV, $37.19) is based on this concept of the fund’s investment strategy.

The Nuveen ESG Large-Cap Value Fund attempts to grow exposure to MSCI USA Value Index components with positive ESG attributes while minimizing carbon exposure by tracking the TIAA ESG USA Large-Cap Value Index. Since 2015, the ESG value index has consistently outperformed the standard value index.

Procter & Gamble (PG) and Intel (INTC) are the most highly concentrated in NULV, which is heaviest in financials (20%) and healthcare (15%), but no stock amounts for more than 3% of assets.

See Related: ViacomCBS Inc. ESG Profile (VIAC): Is It Sustainable?

12. Nuveen ESG Small-Cap ETF

• $834.8 million in assets under management
• 0.5 percent dividend yield
• 0.40 percent in expenses

Tiny caps are discounted compared to major corporations, but “many small companies may not survive these trying times,” she warns. “Using an ESG overlay can aid in the selection of higher-quality small-cap companies that are more likely to weather the storm and succeed in the recovery.”

The Nuveen ESG Small-Cap ETF (NUSC, $44.00) tracks the TIAA ESG USA Small-Cap Index, which applies environmental, social, and governance (ESG) factors to the MSCI USA Small Cap Index.

The 670-stock portfolio is heaviest in information technology firms (17%), industrials (17%), and cyclical consumer sectors (16%), but it covers every sector — which isn’t always a good thing, depending on your ESG priorities.

Purchasing Advice for ESG Funds

Investing can assist you in achieving goals that extend beyond the financial benefits it generates.

There are many ESG funds available for investors to pick from.

Environment

How does a firm manage the influence that it has on the environment? How far along is it in utilizing energy that comes from renewable sources? Is it making an effort to reduce the amount of carbon it emits? How does it deal with the pollution caused by its operations, whether air or water? What is its position on the effects of climate change? What about the company’s efforts to promote sustainability throughout its supply chain?

Social

What steps does the company take to improve its overall influence on society? Does it provide reasonable amounts of salary to its staff members? How can a firm advocate for social good in the larger world, outside of the zone of influence that its business normally occupies?

Governance

Is the salary for executives fair when weighed against the pay for other employees? How do the board of directors and the organization’s management team drive meaningful change? Does the board encourage a diverse group of leaders to serve? Are there any beneficial contacts between the company and its shareholders?

How to Compare Emerging Markets Exchange Traded Funds

Not all emerging market funds are made equal. Some will earn bigger profits, demand higher fees, and take greater risk factors than others.

Before blindly investing in an emerging markets ETF, have a look at a few crucial metrics for each fund:

Cost

The expense ratio of an ETF represents the cost of investing in the fund. According to the Wall Street Journal, the typical ETF charges 0.44 percent yearly. However, expenses might vary dramatically from one fund to the next.

Historic Achievements

Historical performance is critical when investing in any ETF, especially those that focus on emerging economies.

Lastly, investing in developing countries is riskier than investing in developed markets, but it also has a bigger growth potential.

As a result, it’s critical to invest in ETFs with a track record of delivering impressive returns.

The Yield on Dividends

In emerging markets, many stocks offer dividends. Even in the utility sector, which is recognized for paying out generous dividends, certain developing markets funds provide higher dividend rates.

When choosing emerging markets ETFs, seek high dividend yields if your goal is to create income from your assets and seek applicable law.

Growth in Dividends

Dividend growth is an important metric to look for in a dividend-paying ETF. After all, when the fund’s profitability increases, dividend payments should also increase in future performance.

Under Management Assets

Finally, the entire amount of money managed by the ETF for its users is referred to as assets under management.

Unpopular funds don’t get as much attention from investors, leading to liquidity issues when it’s time to cash in your investment decision.

Popular ETFs draw a lot of money. When it’s time to cash out, these funds are relatively simple to sell (according to applicable laws).

A Surge in Long-Term Investment

According to sell-side studies from Wall Street businesses, if the market sentiment is any indicator, investors are quite interested in ESG. Analysts are dedicating many pages to ESG strategy reports, and many companies are including ESG analysis in their normal research notes.

In a recent analysis, Credit Suisse predicted that “ESG… will dominate investors’ agendas in the years ahead,” and Bank of America predicted that “70 percent of US assets cannot be assessed without applying ESG.”

In November, Goldman Sachs analysts stated, “As ESG challenges become increasingly substantial across various industries, our GS analyst teams have set pen to paper to address the impact on corporates.”

“Over the last year, demand for Sustainable Investing has certainly increased,” JPMorgan said.

The Street has taken notice as investor interest has risen. New ETFs and mutual funds focusing on ESG strategies have been created in record numbers, and investors can invest in ESG strategies according to investment advisers act in various ways in funds investment objectives.

Final Thoughts

ETFs are an excellent alternative to explore if you want exposure to emerging markets but don’t have the time or knowledge of the market to be effective in the field and have a relevant index methodology document.

These investments provide broad exposure to various aspects of the emerging markets industry sustainability practices, but they were also developed by some of Wall Street’s most well-known thinkers.

Anyhow, it’s essential to know that not all ETFs are made equal, just like stocks.

Related Resources:

• Oracle Corporation ESG Profile (ORCL): Is It Sustainable?
• Eli Lilly and Company ESG Profile (LLY): Is It Sustainable?
• ViacomCBS Inc. ESG Profile (VIAC): Is It Sustainable?