Investing

The Best ESG ETFs in 2022

By Steve Rogers

ESG investors base their investment strategy on environmental, social, and governance criteria. Different investors may interpret these goals in different ways, but overall the goal is to avoid investing in companies that engage in harmful practices and focus on those that do good. The best ESG ETFs provide an easy, convenient way to pursue these goals.

An Exchange-traded fund or ETF is a basket of securities, usually tracking a specific index. The fund manager issues shares that trade freely on exchanges and can be bought and sold at any time. The best ESG ETFs offer a simple, cost-effective way to move into ESG investing.

The Best ESG ETFs

If you’re looking for a simple, accessible entry point to ESG investing, here are seven top options, including three general ESG ETFs and four ETFs focused on specific issues.

Best for Low Cost and Diversification—Vanguard ESG US Stock ETF (ESGV)

The Vanguard ESG US Stock ETF (ESGV) is a large, highly diversified fund designed to replicate the performance of the Financial Times Stock Index (FTSE) US All Cap Choice Index. It includes a large number of holdings and has the lowest management fee of any large ESG fund we looked at. The ESG criteria are basic but if you’re looking for a single diversified low-cost fund this is a great option.

Expense Ratio 0.09%
3-year Return 19.78%/year
Number of Holdings 1,475
Assets Under Management $6.1 billion
Shares Outstanding 79 million

Best for Global Exposure—iShares MSCI Global Impact ETF (SDG)

The iShares MSCI Global Impact ETF (SDG) RTF invests in companies that advance themes related to the United Nations Development Goals. This includes environmental goals but also many other factors, notably healthcare, education, and human rights. It holds an internationally diversified portfolio.

Expense Ratio 0.49%
3-year Return 21.35%/year
Number of Holdings 153
Assets Under Management $463.1 million
Shares Outstanding 5.35 million

Best Environmental Fund—Invesco MSCI Sustainable Future (ERTH)

The Invesco MSCI Sustainable Future (ERTH) fund invests at least 90% of its capital in stocks of companies in the MSCI Global Environment Select Index. This provides broad, globally diversified exposure to companies across a wide range of environmental concerns.

Expense Ratio 0.55%
3-year Return 18.86%
Number of Holdings 155
Assets Under Management $433.1 million
Shares Outstanding 7.05 million

Best Clean Energy Fund—iShares Global Clean Energy ETF (ICLN)

The iShares Global Clean Energy ETF (ICLN) is designed to provide exposure to a worldwide selection of companies producing energy from solar, wind, and other resources. This narrow focus necessarily reduces the number of holdings: this is not a diversified fund and will appeal to investors who are specifically concerned with Clean Energy and want global exposure.

Expense Ratio 0.42%
3-year Return 38.29%/year
Number of Holdings 76
Assets Under Management $5.66 billion
Shares Outstanding 263.8 million

Best Gender-Specific ETF—SPDR SSGA Gender Diversity (SHE)

The SPDR SSGA Gender Diversity (SHE) ETF invests at least 80% of its holdings in stocks belonging to the SSGA Diversity Index. The index ranks US companies according to their leadership role in building gender diversity in management and in their boards of directors. These are very specific criteria and they may not meet other ESG screens, but if you are specifically interested in companies that empower women, this is a good low-cost start.

Expense Ratio 0.20%
3-year Return 17.03%/year
Number of Holdings 192
Assets Under Management $257.97 million
Shares Outstanding 2.8 million

Focus on Minority Empowerment—NAACP Minority Empowerment ETF (NACP)

The NAACP Minority Empowerment ETF (NACP) is a product of Impact Shares, a provider of specialized ESG ETFs. It’s an easy choice for this category: it’s the only ETF currently focused specifically on companies with strong records of supporting racial and ethnic diversity. The fund tracks the Morningstar Minority Empowerment Index.

Expense Ratio 0.49%
3-year Return 20.29%
Number of Holdings 222
Assets Under Management $41.78 million
Shares Outstanding 1.25 million

Vanguard ESG US Stock ETF (ESGV)

Best For Low Cost and Diversification

The Vanguard ESG US Stock ETF is a large, highly diversified fund with very low management costs. It tracks a broad index composed of large-cap, mid-cap, and small-cap stocks. It’s a passively-managed fund, which is why Vanguard is able to keep the expense ratio so low.

The ESG screening process used by the fund is quite basic and relies entirely on negative screening. The fund omits the following asset classes:

  • Companies dealing with adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling, and nuclear power.
  • Companies with a record of violating environmental, human rights, anti-corruption, and labor rights standards set by the UN Global Compact.
  • Companies that do not meet diversity criteria.

The fund is heavily weighted toward US companies, with 98.3% of holdings in the US.

Like many ESG funds, ESGV is heavily invested in major tech companies. The top five holdings as of April 4, 2022 were:

Company Percentage of Net Assets
Apple Inc. 7.06
Microsoft Corp. 6.24
Amazon.com Inc. 3.7
Alphabet Inc. (Class C shares) 2.4
Tesla Inc. 1.95

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