Investing

The Best ESG ETFs in 2022

Investors with strict ESG criteria may wish to select a fund with more aggressive screening procedures. For example, some investors might be reluctant to invest in Amazon, given the company’s labor issues and questions about their relationship with unions.

This is one of the best ESG ETFs for investors who are satisfied with a basic ESG screen weeding out the most distasteful companies, especially if they are looking for a very low-cost fund with a high level of diversification and high liquidity. Vanguard has a reputation for producing low-cost ETFs, and this fund’s 0.09% expense ratio was the lowest we could find in a major ESG fund.

iShares MSCI Global Impact ETF (SDG)

Best for Global Exposure

The iShares MSCI Global Impact ETF is designed to track the results of the MSCI ACWI Sustainable Impact Index. The companies in the index must draw a majority of their sales from goods and services that address at least one of the major environmental and social problems identified in the UN Sustainable Development Goals.

This focus opens up a huge range of investment opportunities, allowing very considerable diversification. The UN has identified 17 Sustainable Development Goals across fields ranging from the environment to healthcare, education, employment, poverty reduction, gender equality, and more. The fund publishes regular detailed scorecards assessing its carbon intensity, climate impact, and other metrics.

Along with actively seeking companies that advance these goals, the fund also screens out companies that exceed fixed targets for revenues from the manufacture or sale of alcohol, weapons, nuclear weapons, predatory lending, and tobacco.

SDG is a globally diversified fund with exposure in multiple markets.

  • United States: 28.4%
  • Europe: 32%
  • Asia: 31%
  • Canada: 5.1%
  • Latin America: 2.3%
  • Australasia: 1.1%
  • Middle East: 1.1%

These are the fund’s top 5 holdings:

Company Percentage of Net Assets
Vestas Wind Systems 4.61
Umicore SA 4.41
Johnson Matthey PLC 4.06
Novartis AG 4.04
Daiwa House Industry 3.65

The wide ESG criteria and global focus of the fund allow very substantial diversification, which may be absent in more specialized ESG funds. This is one of the best ESG ETFs for investors whose ESG priorities focus on world development and who are looking for a fund large enough to assure liquidity.

The main downside here is the expense ratio. It’s not astronomical but this remains one of the more expensive funds on this list.

Invesco MSCI Sustainable Future (ERTH)

Best Environmental Fund

Invesco MSCI Sustainable Future is a broad environment-focused fund with exposure to companies involved in a broad spectrum of environment-related businesses.

The fund is built around the MSCI Global Environment Select Index, with at least 90% of its assets invested in shares belonging to that index. The index is focused on six main environmental impact themes:

  • Alternative Energy
  • Energy Efficiency
  • Green Building
  • Sustainable Water
  • Pollution Prevention and Control
  • Sustainable Agriculture

The fund is globally diversified, with 35.8% of its holdings in the US, 33.4% is Asia, 24.4% in Europe, 3.1% in Canada, 2.2% in Latin America, and 0.6% in the Middle East. The fund is weighted toward growth stocks, with large-cap growth shares making up 26.35% of holdings and mid-cap growth 20.27%

The fund’s top five holdings are:

Company Percentage of Net Assets
Vestas Wind Systems 5.74
Tesla Inc. 5.7
Digital Realty Trust Inc. 5.26
Enphase Energy Inc. 4.95
Nio Inc. ADR 4.16

This is one of the best ESG ETFs for investors who want a broad environmental focus with global exposure. Its holdings are broader than those of environment funds specifically focused on clean energy or climate concerns, allowing a higher degree of diversification.

The expense ratio is 0.55%, which is the highest on this list but still moderate compared to specialized ETFs overall.

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