7 Best-Performing ESG ETFs

Investors are increasingly considering ESG factors — environmental, social and governance principles — when they choose investments. And the number of ESG-focused options, including ESG ETFs, is growing.

What is an ESG ETF?

ESG funds are investment portfolios that are evaluated based on environmental, social, and governance (ESG) criteria. These funds focus on companies that aim to create a positive societal and environmental impact, such as those with low carbon emissions or diverse leadership teams.

Unlike individual stocks, ESG funds consist of a collection of stocks, which helps reduce risk by diversifying across multiple companies rather than relying on just one.

Exchange-traded funds (ETFs) are similar to index funds and other passively managed investments, but with the key difference that ETFs can be traded throughout the day, much like individual stocks.

Best-performing ESG ETFs

The PwC report reveals that 80% of investors are looking to boost their investments in ESG offerings over the next two years. However, there is a significant market gap: the high demand for ESG investments is not being matched by an adequate supply of suitable products. About 30% of investors have struggled to find ESG investment options that fit well and are appealing for their portfolios. The report also notes that 60% of investors believe ESG-themed investments offer higher returns compared to non-ESG options.

Here are some of the best-performing ESG ETFs. To learn more about how we selected these funds read our methodology below.

How to choose the best ESG funds?

When choosing between active and passive funds, Chavis emphasizes that the decision depends on considerations such as your investment goals, your investing experience and your tax situation. He also recommends consulting an investment professional during this process

In addition to checking expense ratios, make sure an ESG fund’s mission speaks to you. An investor should look for an ESG fund that is in alignment with their goals.

1. Strategy: Actively managed funds aim to outperform the stock market. While this approach might seem promising, actively managed funds often lag behind their passive counterparts. For instance, in 2019, 70% of domestic equity funds underperformed the S&P Composite 1500® according to the S&P Dow Jones Indices year-end scorecard. On the other hand, passively managed funds, also known as index funds, are designed to replicate the performance of a specific market index, like the S&P 500.

2. Cost: Higher fees can erode potential returns. Many top-rated funds are actively managed, whereas low-cost options tend to be passive. Actively managed ESG funds generally come with higher costs compared to their passive counterparts. If you’re seeking sustainable investments at a lower cost, passively managed funds or ESG ETFs might be more economical.

3. Availability: There are currently more actively managed ESG funds than passive ones, though the latter are becoming increasingly available. While passive ESG funds are gaining popularity, you may find a broader selection among actively managed funds.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.