20 Best ESG Funds to Invest for Impact (2024)

When it comes to choosing the best ESG funds, it’s not an easy task. With a plethora of high-performance choices out there, you can easily get confused. Go through my list along with a detailed selection guide to make the ideal choice for yourself.

Not everyone has material or financial benefits in mind when it comes to investment options. With increasing threats to the environment and human society, many investors are looking for socially responsible funds to make a difference.

Believe it or not, investments in ESG funds skyrocketed in the last decade, moving from $12 trillion in 2012 to $30 trillion in 2018.

Besides that, a recent survey shows that 95 percent of all millennial investors are looking for ESG funds to invest their earnings. This growth rate not only shows the popularity of socially responsible investing funds but also their profitability in the long run.

If you want to follow this trend but are confused about how to do ESG investing, I’ve got you covered. I’ve rounded up this list of the best ESG funds to kickstart your ESG investing portfolio right away. So let’s get started.

What are ESG Funds?

Before I start with my list of top ESG funds, here’s a short introduction for beginners who are new to the concept. In a nutshell, ESG funds are investment options that are evaluated in three main areas.

• Environmental – This aspect assesses issues like sustainable use of natural resources and sensitivity towards ecological threats. For example, a company that works to reduce its carbon footprint or restore biodiversity would be graded well in this section.
• Social – The social aspect of ESG funds grades the companies based on how they treat their supply chains and their workforce. For example, it checks if employees face gender or racial equality or if the supply chains are associated with child labor.
• Governance – Lastly, this part scrutinizes the decision-makers and major stake owners in companies. For instance, if there’s a serious lawsuit against the owner or a bad criminal reputation.

Now that you understand what ESG investing options are let’s talk about ESG funds. First of all, ESG funds are completely different from individual stocks. Instead, they are a group of stocks from different companies that you can purchase altogether to minimize risk and diversify your portfolio.

Look at it this way. If you invest in a single company, even if it is an ESG-compliant one, you’re putting all your eggs in one basket. ESG funds help provide a hedge against market risks.

Unlike other mutual, ETF, and bond funds, ESG funds only include companies that comply with their principles. That’s why, if you buy an ESG fund, not only are you making a safe investment choice but doing your bit to promote a sustainable and responsible society.

See Related: Best Investments for Young Adults

Why is ESG Investing Important?

I know what you’re thinking. Nobody invests their money relying entirely on sustainable outcomes. Everyone looks for material returns in one way or the other.

So why should you go through the hassle of ESG investing when you can easily earn high returns on other investments? The answer is simple. Statistics show that the ESG investment sector is continuously growing due to increased awareness about environmental and social issues.

This means, if you’re a prudent investor, you won’t undermine its growth potential in the near future. If you’re an investor planning to stay in the game for the long run, diversifying your portfolio with ESG funds is an essential step for you.

On the other hand, humans as a society are currently facing grave issues that might threaten our existence altogether. And, all of these issues need immediate intervention.

That’s why, as investors, we need to encourage ESG funds and responsible investments to bring an evident change in environmental and social policies worldwide.

How to Choose the Right ESG Funds

Now that you know what ESG funds are and why you need to invest in them as soon as possible, there’s one task that remains at hand. In the current year, the US SIF Foundation estimated more than 800 investment companies with ESG assets.

Taking both ETFs and mutual funds into the account, choosing the ideal option for yourself from the plethora of options available is quite challenging. That’s why, before I list out the top ESG funds, here’s a short guide for choosing the ideal choice for yourself so you can pick one that fits your needs. Also, know the best impact investing apps for ESG investors to learn why they are good options.

Pick Between Active or Passive Funds

Depending on your investment goals, experience, and current tax situation, you’ll have to see whether you should go for active or passive ESG funds.

While passive funds may seem like attractive options because of their low price range, there are many benefits of actively managed ESG funds. For starters, even though actively managed funds underperform their passive counterparts in the stock market, they are available in abundance.

So if you’re looking for a reliable fund focused on sustainability and ESG with reputable names, you should go for actively managed funds.

However, if you’re a beginner and want to earn good revenue with a relatively small initial investment, passively managed funds are the ideal options for you.

Choose Your Area for Impact

This is perhaps the most critical factor when it comes to choosing an ideal ESG fund. Conduct thorough research about your particular ESG fund’s sustainable impacts before diving in, along with checking the investment amounts and potential returns.

Let’s say you’re a person of color and want to promote equality and inclusion in workplaces. In this case, you should go for funds that benefit companies that aim to achieve a similar goal.

Mainly, list out the missions you would like to contribute to with your hard-earned money. Now, before going for an ESG fund, check whether their list of companies aligns with the mission you have in mind.

This way, not only will you earn good investment returns, but you’ll also sleep better at night knowing you’re doing your bit for the world you live in.

Demand An Impact Report

The one major flaw in ESG investing trends is that they are not yet standardized. This means that the level at which a company is deemed sustainable is different in every country and varies from organization to organization.

That’s why the best way to know whether your investment is making a difference is by demanding an impact report whenever you add a new fund to your portfolio.

For example, suppose you’re investing in an ESG fund while considering its responsible policies towards the environment. In that case, you can ask for statistical data about each company’s carbon footprint or efforts toward renewable energy.

You can easily ask any of the ESG fund managers of your choice to present this impact report. This will help put things into perspective for you.

See Related: Best ESG Target Date Funds

List of Best ESG Funds

As I mentioned, ESG funds are abundant in the stock market. Although this is good news for active investors striving for social and environmental impact, it makes the choice difficult for beginners.

If you know the mission you want to focus on but find it confusing to choose an ESG fund that’s right for you, don’t worry. Below, I’ve categorized and listed down some of the best ESG funds along with their salient features to help you make the right choice in no time.

ESG ETF Funds

ETFs or exchange-traded funds are some of the best options for newbie investors. That’s because, along with reflecting the market reality sooner than actively managed funds, ETFs allow you to buy or sell your holdings at any point.

Similarly, because most ETFs are passively managed, they are quite cheaper than other ESG fund options. Despite being relatively new in the market to mutual funds and other investing techniques, ETFs provide efficient tax policies.

If these aspects attract you, here are some options for the best ESG ETFs.

First Trust ISE Global Wind Energy Index Fund (FAN)

FAN, an ESG ETF fund issued by First Trust, works to regulate the Clean Edge Global Wind Energy Index. This system provides the exposure needed for companies supporting renewable wind energy.

Created back in 2008, this ETF fund has more than $500 million worth of assets under its management. Combined with companies dedicated to developing wind power, the ETF also includes companies involved in other operations for portfolio diversification.

Some of its well-known holdings include Northland Power, a power generation company based in Canada, Siemens Gamesa Renewable Energy, and a wind power plant manufacturing company from Denmark named Vestas Wind Systems.

Most importantly, the ETF promises a dividend of 0.80% annually, making it a profitable option for investors looking to contribute to the renewable energy sector.

See Related: Ethical Dividend Stocks to Invest in Today

2.iShares S&P Asia ETF (AIA)

This ETF issued by iShares works to track the Asia 50 index by regulating the performance of leading companies from well-known Asian countries. These countries include China, Singapore, Hong Kong, South Korea, and Taiwan.

Created back in 2007, the ETF has more than $3 billion worth of assets and promises an annual yield of 0.98%. The best part about this ETF is that it allows impact investors to formulate a blended investment strategy.

That’s why it manages a wide array of stocks that provide value and growth at the same time. One of its central holdings includes Tencent Holdings from China, a company providing internet services and mobile gaming, and e-commerce.

Its portfolio ranges from popular companies like Taiwan Semiconductor Manufacturing to Samsung Electronics from South Korea.

See Related: Best Charles Schwab ESG Funds

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

This is another ESG ETF issued by First Trust. Widely known as GRID, this ETF tracks the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index. If you’re an investor looking to invest your funds to promote electrical energy use, this is the ideal ETF option for you.

Mainly, this ETF funds companies that work to maintain operate and innovate in the electric field. These operations concern electric grid technology and electric networks, energy storage, meters, and other devices.

This ETF was issued back in 2009 and currently manages assets worth approximately $2 million. As an investor, you can expect to earn 0.64% in annual dividends.

Most importantly, this ETF provides a hedge against market fluctuations by investing your money in both growth and value stocks. Some of the salient names from its holdings include Aptiv PLC and Johnson Controls International.

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4. Amundi MSCI World ESG Leaders Select UCITS ETF (SADW)

This ETF was launched in 2020 by Amundi. Known as the SADW, this ETF operates by providing the required global exposure to both large-cap and mid-range stocks.

Moreover, its reach extends to more than 23 developed countries globally, regulating companies with high ESG scores. Along with that, the SADW ETF does not include companies involved in the operation of drugs, tobacco, weapons, alcohol, and gambling.

It uses the MSCI-designed ESG scoring system to scrutinize every company it adds to its portfolio, to ensure that its investors are funding only impact industries. Most importantly, the companies with the highest ESG score make up a 50% market cap in the SADW ETF.

Some of its well-known holdings include Proctor Gamble, Microsoft, and NVIDIA.

5. HSBC Emerging Market Sustainable Equity UCITS ETF (HSEF)

If you’re an investor interested in green funds, this ETF launched by HSBC is the ideal option for you. Created in 2020, the ETF works by tracking each of its companies through the Low Carbon Emissions Select Index.

To make the investing process reliable and transparent for its investors, the ETF screens each company using a three-step method. In the first step, any company involved in malicious activities connected to alcohol, tobacco, and weapons is excluded.

After that, the second step includes evaluating its ESG scores, emphasizing the annual carbon footprint reduction. Lastly, the last step excludes companies that are incompliant with UN regulations.

Generating a five-year return of more than 50%, the ETF’s significant holdings include Alibaba, Taiwan Semiconductor Manufacturing, and China Mobile.

6. SPDR S&P 500 Fossil Fuel Reserves Free ETF

If you’re looking to impact the environment with your hard-earned money, you can invest in companies that work to reduce the use of fossil fuels. By joining the SPDR S&P ETF, you can exclude all the companies with fossil fuel reserves in any form from your investment portfolio.

Mind you, this would mean excluding all companies that use natural gas, crude oil, or coal, which leaves you with a narrow investing portfolio. However, the ETF has churned out around 4.5 percentage points in the last few years and has shown a notable performance in the sizeable blended market category.

This means investing through ETF won’t only help you sleep better at night but will also provide profitable dividend yields of up to 1.4% annually.

7. Nuveen ESG Large-Cap Value ETF

Most investors in the ESG sector are concerned about their investment’s long-term value in the market. This ETF by Nuveen works to invest in high-quality companies with a lower risk of market degradation.

This means that the ETF only includes thoroughly vetted companies to stand the test of time in turbulent market conditions. With a current managed asset value of around $700 million, the ETF is an ideal option for those looking for safe ESG investment funds.

The ETF has most of its holdings in healthcare and Intel. However, the management makes sure that no stock makes up for more than 3% of their holdings, which helps mitigate investors’ market risk.

With initial expenses of around 0.35%, the ETF is a promising option that brings 1.5% in dividend yields every year.

8. SPDR STOXX Europe 600 ESG Screened UCITS ETF (ZPDX)

The SPDR STOXX Europe 600 ETF provides a reliable option for investors aiming for socially responsible investing. The ETF works by excluding all companies involved in unethical practices and unsustainable environmental policies.

The fund uses the Sustainalytics Global Standards to test the companies before including them in its investment portfolio. It particularly omits companies connected with weapon manufacturing, tobacco production, and coal mining.

Despite the thorough screening, the fund includes around 578 holdings. Some of the prominent ones include Nestle, Novartis, and ASML Holding.

9. Franklin S&P 500 Paris Aligned Climate UCITS ETF (USPA)

The Franklin S&P 500 ETF is one of the most accessible ESG funds in Europe. Founded by Franklin Templeton to fill the niche that arose after the Paris Agreement, this ETF aims to reduce climate change impacts.

The ETF includes around 400 stocks from various companies with a similar outlook on climate change and the overall reduction of carbon emissions. USPA follows the standard ESG selection based on the benchmark created by the Paris Agreement. Besides that, the ETF helps you exclude companies involved in the use of non-renewable energy sources such as natural gas, oil, and coal.

Although it does not have any performance history launched in early 2020, it has generated a 10.6% revenue from July-November. However, with its environmental score of 62 and 55, and 51 in social and governance scores, it is a profitable option for investors looking for long-term ESG funds.

ESG Mutual Funds

Mutual Funds work quite differently than ETFs. When you invest in mutual funds, you are dealing directly with the companies that manage the funds.

Although most mutual funds are actively managed, they come with a specified holding period and high price range that might be a turn-off for beginners in the market.

However, the high price range gives you hands-on research, analysis, and data regarding your asset’s performance which is a huge plus if you’re aiming for impact. Here are some ESG mutual fund options for you to consider.

10. Vert Global Sustainable Real Estate Fund (VGSRX)

If you want to include real estate investment options in your portfolio, this mutual fund is easily the best option for you. Typically, it is quite challenging to find ESG investing funds in the real estate sector, and the VGSRX is one of the leading funds in the niche.

Launched by Sam Adams, the CEO of Vert Asset Management, the fund works to provide exposure to companies looking to incorporate green practices into building structures.

Ultimately, the fund only selects companies that take specific measures to reduce their carbon footprint in the real estate sector and contribute positively to the environment. Also, the fund uses the popularity of green funds strategically to generate steady profits for its investors.

Currently, they own numerous investment trusts, and REITs are diversified across multiple countries. One of their prominent holdings is the California-based REIT called Equinix.

11. Vanguard FTSE Social Index Fund Admiral

If you’re looking for affordable Vanguard SRI funds to invest in, the Vanguard FTSE Social Index Fund Admiral is one of the cheapest ESG mutual fund options. In 2020 alone, the fund acquired more than $3 billion worth of assets under its management.

The mutual fund excludes companies involved in alcohol, weapons, and tobacco businesses, including only socially responsible investing options in your portfolio.

Although they use a separate screening process than other actively managed ESG funds, it does assess the environmental and social impacts of its holdings adequately.

Some of its most popular holdings include Apple, Amazon, and Microsoft. The fund promises almost 1.2% in yearly dividends to its investors, which is expected to grow, attributing to the industry’s popularity. Check out these other top Vanguard ESG ETF funds.

12. Shelton Green Alpha Fund (NEXTX)

The NEXTX, founded by the Shelton group of companies, is an impressive mutual fund for investors targeting long-term growth. The fund includes companies that are thoroughly checked for their positive influences on the environment, along with a thorough assessment of their asset appreciation.

This way, its investors are putting their money into sustainable environmental practices and earning profitable returns. Most of its holdings are from companies leading the sustainability game and showing high growth potential, namely IBM and Tesla.

Besides that, the fund conducts a thorough analysis of market fluctuations and global circ*mstances to mitigate the risk factor for investors. Although the fund is entirely on the expensive side with around 1.4% of initial expense, it promises a staggering five-year growth rate of more than 16%.

13. Parnassus Core Equity Fund Investor

The Parnassus Core Equity Fund Investor manages more than $23 billion of assets through its ESG mutual fund. The fund only lets in companies that share a similar vision of environmental and socially responsible practices.

Furthermore, the fund works to exclude companies connected with unethical businesses to reduce loss due to controversy and irrelevance. Moreover, the fund makes it a point to put management teams of their holdings under the test to gauge their productivity and growth rate in the future.

Most importantly, the Parnassus fund performed 2.5% better than S&P 500 funds during the past three years. So if you’re an investor targeting long-term growth, this is the ultimate option for you.

14. Pax Ellevate Global Women’s Leadership Fund

If you’re a feminist who wants their sentiments reflected on their investment portfolio, this mutual fund by Pax Ellevate is a profitable option for you. The fund currently manages more than $700 million worth of assets, which clearly shows the potential in gender-centered, socially responsible investments.

Promising a yearly dividend of 1.1% with a 0.80% upfront expense, the mutual fund covers more than 400 companies promoting gender diversity in their workplaces. What’s more, the fund succeeded in outperforming 93% of its global competitors in equity during the last five years.

The fund uses specific criteria through its Gender Analytics Team to evaluate companies for adequate representation of women and pay rate equality. Some of its top holdings include Accenture and Microsoft.

15. Calvert Emerging Markets Equity Fund I (CVMIX)

For investors interested in achieving long-term appreciation of assets, this ESG mutual fund launched by Calvert Emerging Markets is an ideal option. The fund includes companies from emerging markets that follow the use of sustainable business practices across multiple sectors.

Since its launch in 2012, the fund has performed impressively in the market with over 7% in average returns in the last five years. For an inexpensive initial price range of 0.99%, it is a profitable option for beginners looking to invest in ESG funds.

This emerging markets fund is a decent way to gain international exposure and diversify your portfolio.

ESG Bond Funds

Bond funds are investment assets that let investors benefit from market volatility. They have lower minimum investment amounts so that you can buy them for lower prices than other investment funds.

You can also purchase multiple bonds to diversify your portfolio while earning a steady interest rate. You can buy these bonds directly from fund managers at the market rate or through brokerage accounts.

Either way, these bonds are highly liquid as they can be sold back to their fund managers, making them more attractive to investors. If you’re interested, here’s a list of ESG bond funds to invest in today.

16. Boston Trust Walden Balanced Fund

The Boston Trust Walden Balanced Fund has a fixed-income portfolio that includes multiple bonds. Namely, corporate bonds, municipal bonds, government-related bonds, and cash equivalents.

Investors can purchase bonds at a 1% expense and earn about 0.8% in yearly dividends. Furthermore, the fund acquires companies of all sizes but focuses on large-cap companies like Apple, Google, and Microsoft.

This bond fund is known to screen its holdings for ESG compliance and ESG factors thoroughly. They avoid companies with poor corporate governance and those with any connections to alcohol production, tobacco, weapons, and coal mining.

17. TIAA-CREF Core Impact Bond Fund

The TIAA-CREF ESG bond fund launched by Nuveen is a fixed-income portfolio strategy for beginning investors in the sector. The fund acquires high-investment bonds from leading ESG-compliant companies that have a reliable impact on environmental and social issues.

Mainly, these bonds focus on companies trying to contribute responsibly towards issues of key ESG principles such as natural resources, promoting renewable energy, and providing affordable housing.

Currently, this fund manages assets worth around $6 billion and provides an annual yield of 1% to its investors.

18. Sage ESG Intermediate Credit (GUDB)

This bond investment option, named Sage ESG Intermediate Credit, works with various investment-grade bonds dominated by the US dollar.

The fund itself has put forward testing criteria to select its companies based on ESG compliance, including corporate governance initiatives.

Only the ESG companies that manage to score the top third position in their peer group are included in their investors’ portfolios. Founded back in 2017, the fund displayed a positive market performance of 5% in November 2020.

Besides that, the expense ratio is only 0.35%, making it an affordable option for beginner investors seeking sustainable investing.

19. iShares ESG USD Corporate Bond Fund

The iShares ESG USD Corporate Bond Fund is a fixed-income option for investors looking for ESG bond funds. The fund focuses on acquiring securities for corporate debt and selling them to its investors for profit.

However, following the Bloomberg Barclays MSCI US Corporate US Funds Index, the fund does not include companies that produce firearms, weapons, or fossil fuels. The managers exclude companies based on their revenue percentages generated from unethical means.

It was launched back in 2017, so there’s no substantial performance record. However, it outperformed the category by 52 basis points in 2020.

See Related: History of Impact Investing

20. NuShares ESG U.S. Aggregate Bond ETF (NUBD)

The NuShares ESG US Aggregate Bond Fund acquires bonds from companies like Bloomberg and Barclays. The NUBD scrutinizes all its bonds using the ESG criteria.

Besides that, the bonds that pass the ESG screening are only included if they have a reasonable market value. Launched back in 2017, the bond fund showed a performance of almost 7% in November 2020.

With an expense ratio of only 0.20%, this bond fund is an affordable option for ESG investors just starting.

Table of the Best ESG ETF Funds

This is a full list of ESG ETF funds with their ticker symbols and market capitalization.

Frequently Asked Questions (FAQs)

Now that you’ve been through my list of the best ESG funds available from different categories, it’s time to answer some FAQs regarding the topic.

What is an ESG Fund?

An ESG fund is an investment option that lets investors use their money to fund companies supporting ethical and responsible practices. All companies included in ESG fund portfolios are carefully vetted using specific ESG criteria.

For additional knowledge. Do you know the difference between ESG, SRI, and Impact Investing?

How Many ESG Funds Are There?

In 2020, there were more than 800 ESG funds identified in the US by the SIF foundation. Together, these funds make up around $3 trillion in asset values.

What Does ESG Mean?

ESG is a criterion used to evaluate companies based on their environmental, social, and governance management.

Are ESG Funds Worth It?

Yes, the investment market is witnessing exponential growth in ESG funds’ performances. That’s why ESG funds are not only worth it in terms of responsible and ethical implications, but they also provide profitable returns on investment.

What Are the Best ESG Funds?

The best ESG funds are the ones that help investors contribute adequately towards sustainable and responsible principles.

However, this doesn’t mean that investors should ignore the financial gains they receive from their investments. Some of the best ESG funds that provide high returns by supporting sustainable businesses include Vanguard SRIs and ESG funds from the Nuveen umbrella.

See Related:What is ESG Shareholder Activism?

Final Words

That concludes my list of the top ESG funds along with their salient features. Remember, the funds with the highest or lowest price tags don’t have to be the best options for you.

Instead, in the case of ESG funds, it all depends on your personal preferences. Assess each fund based on the mission you have in mind so that you can make the difference you want with your investment.

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